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Competition versus coordination: The impact of flattening government on firm creation and aggregate productivity

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  • Yuan, Lingran
  • Zhang, Qizheng
  • Gong, Binlei

Abstract

This paper studies how flattening government hierarchy shapes firm creation and aggregate productivity. Exploiting the staggered implementation of China’s government reorganization with comprehensive firm registration data, we find that this delayering of government substantially hindered firm creation and reduced aggregate productivity, with effects especially pronounced among larger enterprises. We discuss two primary channels driving this result: weakened coordination arising from expanded provincial control and intensified vertical political competition between prefecture and county governments. Our findings highlight that flattening government hierarchy can generate unintended economic frictions, potentially offsetting its intended benefits.

Suggested Citation

  • Yuan, Lingran & Zhang, Qizheng & Gong, Binlei, 2026. "Competition versus coordination: The impact of flattening government on firm creation and aggregate productivity," Journal of Economic Behavior & Organization, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:jeborg:v:247:y:2026:i:c:s0167268126001927
    DOI: 10.1016/j.jebo.2026.107606
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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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