Subsidies for Sale: Post-government Career Concerns, Revolving-Door Channels, and Public Resource Misallocation in China

Abstract

While the existing literature focuses on how revolving-door officials deliver benefits to firms after taking corporate positions, this paper shows that officials distort public resource allocation for private-sector job opportunities while still in office. To test this theory, I construct a new dataset that links over 160,000 corporate subsidy programs approved by three levels of local government with former officials who joined publicly listed Chinese firms between 2007 and 2019. I show that forward-looking officials provide favorable subsidies to their future employers. To verify the exchange of favors, I document that firms repay officials who have provided favorable subsidies by hiring and compensating them in cash. Moreover, this revolving-door exchange is a preferred choice for firms because these subsidy providers could deliver benefits after joining firms. Lastly, evidence suggests that trading favors through the revolving-door channel leads to allocation distortion and a decline in prefectural public spending.

Keywords: Business-Government Relations, Revolving-Door Officials, Corruption, China