Flattening of government hierarchies and misuse of public funds: Evidence from audit programs in China

Shiyu Bo, Yiping Wu and Lingna Zhong

Journal of Economic Behavior & Organization, 2020, vol. 179, issue C, 141-151

Abstract: Reducing the number of layers (or “flattening”) government hierarchies is a popular trend in developing countries, but the value of doing so is unclear. Using a hierarchy reform in China that started in 2003 as an exogenous shock, we investigate whether flattening government hierarchies results in local governments using fiscal funds poorly. We use a unique dataset from audit programs in China and find that the county-level amount of misuses of fiscal funds detected by auditors increases after the government hierarchy is flattened, because the monitoring of county leaders decreases and then they can more easily divert public funds from their statutory use. Furthermore, the misuse of funds leads to sizable losses in public welfare and trust and a stronger perception of corruption.

Keywords: Hierarchy; Flat organization; Delayer; Audit; Public funds (search for similar items in EconPapers)
JEL-codes: D73 H11 H77 H83 O10 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:179:y:2020:i:c:p:141-151

DOI: 10.1016/j.jebo.2020.08.045

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