Does flattening government improve economic performance? Evidence from China
This paper examines a causal relationship between the flattening of a government hierarchy and economic performance by exploiting a panel data set on government reorganization in China from 1995 to 2012. Delayering has led to increases in revenue and inter governmental transfers for county governments, but the associated enlarged span of control makes it difficult for upper level governments to coordinate and monitor local ones. This has led to a reduction in county governments' total public expenditure and pro growth expenditure, as well as an increase in land corruption. Overall, the flattening of the government hierarchy has a negative effect on economic performance.