City's Soft Power: Political Networks and Financial Allocation in China

Abstract

This paper investigates how informal networks shape intergovernmental fiscal distribution in four Southeastern provinces of China. We use newly collected data that contain background information on allocation-relevant officials and focus on the Urban Maintenance and Construction Funds. We find that provincial top leaders allocate significantly more funds to cities governed by officials with the same birthplace or overlapping work histories. However, cities with top leaders from the same universities as any directors of allocation-relevant provincial departments receive less funding. We analyze heterogeneity across cities and connection types and discuss two mechanisms behind our results -- trust and competition.