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

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  • Bo, Shiyu
  • Wu, Yiping
  • Zhong, Lingna

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.

Suggested Citation

  • Bo, Shiyu & Wu, Yiping & Zhong, Lingna, 2020. "Flattening of government hierarchies and misuse of public funds: Evidence from audit programs in China," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 141-151.
    • Handle: RePEc:eee:jeborg:v:179:y:2020:i:c:p:141-151
    DOI: 10.1016/j.jebo.2020.08.045
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    More about this item

    Keywords

    Hierarchy; Flat organization; Delayer; Audit; Public funds;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • 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
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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