In China's distinct hybrid economy, the central government uses economic performance evaluations to steer the career advancement of local officials. Strong career incentives can enhance growth when local governments are constrained from using debt, but might foster short-termism and crowd out private capital otherwise. The paper develop “institutional accounting” to back out the parameters characterizing the Mandarin system and perform counterfactuals to study their effects. Strong career incentives are a major drive for China's fast growth, while reining in local government debt has a large positive effect on the long-run output. We also compare the equilibrium outcome with the Ramsey solution. Welfare implications of the Mandarin system are ambiguous.
Session Chair: Xiaoyan ZHANG
Xinyuan Chair Professor of Finance, Associate Dean, PBC School of Finance, Tsinghua University; Senior Fellow, ABFER
Updated 5 Apr 2024
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