Does an Elected Leader Have Incentives to Provide Public Goods with Future Returns? –Evidence from China

This paper examines changes in the allocation of public funds between production related public goods (PRPGs) and labour augmenting public goods (LAPGs) once elected village leaders replaced an appointment system. We derive a two-period theoretical model in which the interest of appointed leaders in short economic development leads to allocate all public resources into PRPGs in the first period. In contrast, elected leaders have greater incentives to reflect the interest of electorates by allocating public resources to maximize their two-period revenues. The model predicts that elections lead to an increase in the provision level of LAPGs and a decrease in PRPGs in the first period, if the first-period allocation equilibrium of appointed leaders is away from the allocation mix in maximization of the two-period revenues. A panel dataset of 71 villages for the period of 1993-2000 is used to examine these two predictions. The results show that the elections increased the provision level of public health (LAPGs), but had no effects on irrigation facilities and paved roads (PRPGs).