A Decentralized Iron Cage: Do Chinese Local Officials Comply with the Central Government

This paper contributes to the literature in financial aid and authoritarian institutions. For a long time, scholars are debating whether financial aid is able to facilitate development and governance. Though abundant evidence is provided, the answer is still inconclusive. On the other hand, scholars investigating China argue that the leadership uses various institutions to ensure local officials' compliance. In this paper, we nd that the financial aid does not bring a positive impact and the central government in China does not have enough monitoring capacity to force local officials to comply. We study a redevelopment program established by Chinese central government after the 2008 Wenchuan earthquake. By adopting a geographic regression discontinuity combining with a difference-in-differences design, we show that the redevelopment program does not significantly develop the disaster area. On the contrary, the evidence implies that the economy in the disaster area is worse after receiving the aid. The results imply that local officials do not follow the central government's regulations and misuse the aid money for other purposes. In the future, we expect to further investigate through which mechanism do local officials undermine the existing institutions.