RIEB Discussion Paper Series No.2025-23

Title

Inside Job, Chinese Style: Suspicious Use of Public Funds under Fiscal Pressure

Abstract

Governments usually increase taxes or cut spending to tackle deficits. In contrast, local governments in China tend to increase suspicious uses of public funds under fiscal pressure, which is not well understood. Using the reduction of agricultural tax as a revenue shock, we find that greater fiscal pressure leads to higher questionable fund use by county governments. The suspicious activities are triggered by the motivation to reallocate resources, to fields that correlate with officials' own interests like stimulating local economic growth, pursuing personal promotion as well as grabbing resources before retirement.

Keywords

Fiscal pressure; Government audit; Public funds; China

JEL Classification

H83, O23, P37

Inquiries

Qun BAO
School of Economics, Nankai University

Rui HUANG
School of Economics and Trade, Hunan University

Guoqin PAN
School of Economics, Nankai University

Laixun ZHAO
Research Institute for Economics and Business Administration,
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059