A comparative study on local government incentives
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| Title | A comparative study on local government incentives
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| Author | Qiao Baoyun, Liu Lezheng, Yi Xundong and Guo Shen |
| Organization | Central University of Finance and Economics |
| Email | sguo.cufe@gmail.com |
| Key Words | promotion tournament; fiscal incentives; regional cooperation; social welfare |
| Abstract | Two local government incentive mechanisms prevail in China: promotion tournament of officials and fiscal revenue sharing. This paper compares social welfare under these two mechanisms based on a model with sequential games between the central government and local government. Given the tremendous regional differences in endowments and economic development level in China, we find that the incentive mechanism based on tournament of officials not only curbs the regional cooperation, but also induces lower level of effort from local officials than the fiscal incentives. Moreover, the fiscal incentive beats the official tournament in terms of maximizing the central government’s utility and social welfare. |
| Serial Number | WP641 |
| Time | 2014-08-05 |
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