Poster #93 - Local Government Expenditure Preferences Under Top-Down Mandates: A Quasi-Natural Experiment Based on China’s Education Reform

• In Event: Friday Poster Reception

Abstract

Local government expenditure preferences have long been a core focus of public administration research. The Tiebout model posits that local governments adjust public service priorities in response to bottom-up voter demands. However, in authoritarian systems like China, local governments are primarily shaped by upward accountability to the central state rather than societal pressure from below. With China’s central government increasingly emphasizing social policy goals such as education, environmental protection, and social security, a critical question emerges: how do local governments adjust their expenditure preferences under top-down mandates and high-powered incentives?
In China’s multitask governance framework, local governments cannot respond uniformly to all policy goals; instead, they prioritize tasks based on political salience, assessment intensity, and top-level signals, with these priorities reflected in budget allocations. Existing studies note that strengthening a single policy target often leads to goal substitution and implementation bias, and local expenditure choices are typically analyzed through the dichotomy of growth-oriented vs. public-service spending.
A key research gap is that most of this literature explains local expenditure preferences only in contexts where economic growth is the dominant objective, and little is known about how local governments respond when higher authorities impose binding expenditure targets for a specific public service.
To address this gap, this study draws on the multitask principal-agent theory (Holmström and Milgrom, 1991) to examine local government responses when the central government sets clear, mandatory quantitative targets for a specific category of public service spending. We argue that while local governments will increase spending in the targeted sector to ensure the effective provision of the centrally prioritized service, they will also selectively crowd out other expenditures under tight budget constraints—ultimately undermining the overall provision of public goods.
Empirically, we use China’s 2010 education reform (centered on the mandate that public education expenditure reach 4 percent of GDP) as a quasi-natural experiment. Employing Propensity Score Matching combined with Difference-in-Differences and panel data from 31 Chinese provinces (2008–2014), our analysis yields three key findings: First, the central education mandate significantly increased education spending and improved education provision. Second, this increase in education expenditure significantly crowded out spending on science and culture, leaving the overall level of public service provision largely unchanged. Third, the crowding-out effect was selective, with limited impacts on social security and health care. These findings reveal a bloc-based logic of fiscal adjustment in China: local governments reallocate fiscal resources within functionally similar public service clusters rather than impose uniform cuts across all budget items.
More broadly, this study demonstrates that under vertical coordination in a unitary state, local strategies for coping with multitask governance may achieve partial policy goals while eroding the coherence of overall public service provision. Our findings highlight that effective target design requires integrated goal-setting across functional spending blocs, paired with system-wide fiscal constraints.

Key words: Local government; Expenditure Preferences; Quasi-Natural Experiment

Authors

• Zhirui Mo, China University of Political Science and Law
  Presenting Author

• Tao Ren, China University of Political Science and Law
  Non-Presenting Co-Author

• Xiangyang Han, Renmin University of China
  Non-Presenting Co-Author