Local Tax Effort and Anti-Corruption Campaign: Evidence from China

Abstract

The study aims to explain the factors leading to changes in tax bureaucrats' effort levels and how closely these factors are associated with the anti-corruption campaign launched by President Xi Jinping after he took office in 2012. I constructed an original dataset and employed a fixed-effect counterfactual estimator to decompose the effects of routine anti-corruption actions and unique measures in the anti-corruption campaign on tax bureaucrats' effort levels, proposing different mechanisms to explain the differences between these effects. I argue that, first, based on the formal relationship between municipal party secretaries and local tax bureaucrats in Chinese prefecture-level cities, the turnover of party secretaries triggers a "new broom sweeps clean" effect, increasing tax bureaucrats' effort levels; second, for tax bureaucrats at any level, the changes in external conditions brought by the anti-corruption campaign are not sufficient to reduce tax bureaucrats' effort levels in the long term.Regression results validate my theory: for general political turnover of municipal party secretaries, tax bureaucrats' effort levels increase in the second year after the party secretary takes office; while for cities where party secretary turnover occurred due to corruption, local tax bureaucrats' effort levels are lower than other types of political turnover, but the effect remains positive. Furthermore, the negative impact on bureaucratic efficiency brought by central inspections since the 18th National Congress of the Communist Party of China is short-lived.