Does The Leadership Change Affect The Local Government Spending Priorities?

Since the reform and opening up, the Chinese economy develops fast. Many economists look to local officials who played a very important role in economic development. In the existing literature on economic growth, economists have given some attention to the role of local leadership. Then, how is the local official affect the local economy? While, because of differences in local policy, the places are different in attracting investment, regional competition, and developing the local economy. There are many other aspects of policy, and we make no claim that our results easily generalize to other measures of policy. But fiscal expenditure composition is clearly an important aspect of government policy– local officials differentiate themselves by how they would prioritize expenditures if changed, and many campaign issues are related to expenditure composition. Meanwhile, in the current political decentralization and personnel system, local officials compete for growth, resulting in the structure of public expenditure seriously distorting. Hence, it is worthwhile examining expenditure composition in and of itself, to see whether local leadership changes matter at all for expenditure allocation.Whether leadership changes result in changes in the composition of government expenditure is an empirical question that cannot be determined by theory alone. In this paper, we empirical study whether local officials change affect the structure of public expenditure. Using a dataset we created on the composition of local government expenditures in a panel of 29 provinces over 1994-2006, we test whether changes in provincial party induce significant changes in public expenditure composition. We find robust evidence that changes in provincial party tends to have significant effect on expenditure composition. The changes in provincial party affect different between in the short-run and in the long-run, in different types of officials, and in different areas. This finding is robust, under the current Chinese regime in the exchange of local officials, officials of the policy adjustment and promotion system has an important role in guiding the development, also enrich the existing literature of official governance and fiscal decentralization theories.