Power Signaling and Intergovernmental Transfers: Evidence from the Distribution of Center‐to‐Province Earmarked Transfers in China

Objective This article analyzes how authoritarian leaders manipulate intergovernmental transfers to signal their superior status relative to their rivals in power competition. Methods We first discuss under what circumstances the leaders have the incentive to signal dominance over his or her rivals. We then hypothesize that, at equilibrium, those who showed loyalty to the more powerful receive more resources while those who demonstrated loyalty to the weak side receive far fewer resources. Empirically, we investigate how the power shuffle in China that began in late 2002—when Party Secretary General Jiang Zemin resigned his post to Hu Jintao, thus resulting in a power rivalry between them—affected the pattern of center‐to‐province earmarked transfers during 2004–2006. Results We found robust evidence that the earmarked transfers were distributed in a way that signaled Jiang's dominant status in relation to Hu. Conclusion For authoritarian leaders, a major goal of distributing economic resources, such as intergovernmental earmarked transfers, is to signal the power distribution at the top when revealing such information is urgent in fierce power competition.