Expressways and policy choices of local governments

Jing Xing and Eddy H.F. Tam

European Economic Review, 2024, vol. 168, issue C

Abstract: We examine how intercity road connection affects the policy choices of local governments, using the construction of China’s national expressway as a natural experiment. We show that peripheral counties reduced the level of spending and changed the spending composition since the expressway connection. They became less involved in spending competition, increased the effective tax rate on private firms, and slowed down the privatization of state-owned firms. These results are consistent with the view that mobile capital tends to relocate from peripheral areas to core regions with a lower trade cost. We further show that such changes in government policies contribute significantly to the output decline in these regions after the expressway connection.

Keywords: Local governments; Transportation; Infrastructure (search for similar items in EconPapers)
JEL-codes: H4 H7 O18 R4 R5 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:168:y:2024:i:c:s0014292124001442

DOI: 10.1016/j.euroecorev.2024.104815

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