How Does Political Connection Affect Resource Allocation in China

Paul-Emile Bernard ()
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Paul-Emile Bernard: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper examines the role of political connections in shaping firm-level resource allocation in China. Using administrative data, I distinguish between national and local ties and estimate their effects on subsidies, capital costs, and tax liabilities. Politically connected managers secure systematically larger transfers and face more favorable financial conditions. National connections increase access to direct subsidies, while local ties reduce capital costs and effective tax rates. A difference-in-differences design reveals that nationally connected firms receive 38% higher annual subsidies over four years. Locally connected firms lower their capital costs by 2.5%. Political access substitutes for marketbased allocation.

Keywords: Misallocation; Tax Avoidance; Subsidy; Political Connection (search for similar items in EconPapers)
Date: 2025-06-02
Note: View the original document on HAL open archive server: https://univ-paris-dauphine.hal.science/hal-05433428v1
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