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Government-decentralized power: Measurement and effects

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  • Chen, Shaoling
  • Gao, Qing
  • Peng, Qing
  • Yang, Haisheng

Abstract

Using tools from computational linguistics, we construct a new measure of government-decentralized power faced by Chinese firms: the diversity between central and local government work reports. Using our measure, we document that government-decentralized power has an inverse U-shaped impact on investment efficiency (a U-shaped impact on investment inefficiency). Currently, government-decentralized power is below its optimal level. The underlying mechanisms are yardstick competition among local governments and the election effect of political officials, which dominate the preference-matching effect in support of decentralization. Furthermore, local governments present broadly positive sentiment in their reports. This strengthens the negative impact of inadequate government-decentralized power.

Suggested Citation

  • Chen, Shaoling & Gao, Qing & Peng, Qing & Yang, Haisheng, 2021. "Government-decentralized power: Measurement and effects," Emerging Markets Review, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:ememar:v:48:y:2021:i:c:s1566014120302971
    DOI: 10.1016/j.ememar.2020.100769
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    More about this item

    Keywords

    Government-decentralized power; Investment efficiency; Textual analysis; Yardstick competition; Election effect;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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