Accountability and Growth: The Costs of Village Democracy in China

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Monday, July 30, 2018

This study uses a unique survey to study the impact of electoral reforms on income growth in rural China during the past two decades. Electoral reforms shifted the accountability of village leaders from higher level government towards villagers. We …find that this shift in accountability reduced income growth and inequality across villagers. Interestingly, we …nd no effect of electoral reforms on redistribution. Rather, the reduction in inequality is the outcome of the reduction in growth and the fact growth is biased towards the rich. We provide a simple model to show that in an environment where higher levels of government focused on income growth, electoral reforms can reduce growth by shifting the leader’s effort from economic growth to public goods provision; or by reducing the incentives of the leader because villagers perceptions of overall leader performance might be subject to shocks. Our empirical results suggest that both channels may be present. While we fi…nd an improvement in some social outcomes such as a lower number of disputes and a reduction in village personnel, such improvements are small.