Land Revenue Windfalls, Signaling, and Career Incentives of China’s Local Leaders

We analyze a dataset constructed on the political turnovers of 3,623 county leaders in China during 1999-2008, and find that their career incentives — the institutional foundations of China’s three decades of sustained economic growth — remain powerful. This is in spite of a policy shock that assigns to them the residual claiming rights over land revenues and their having substantially more discretionary revenue to spend as a result. Specifically, the county leaders spend significantly more to signal their achievements (for promotion), and on a variety of activities that benefit mostly the government bureaucracy, than on projects that enhance social welfare.