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Career Incentives, Tournament Competition, and Performance Manipulation: Evidence from Chinese Cities

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Abstract

Gross domestic product (GDP) is the most widely used measure for economic growth, and its veracity is vital to researchers and policymakers. In this paper, we study the behavior of misreporting GDP in China and examine how it is shaped by career incentives and tournament competition among local bureaucrats. Based on data on city leaders, official GDP growth, and growth predicted by nighttime lights, our analysis first demonstrates that performance exaggeration increases over the course of the first term of the top bureaucrat and peaks in the last year of the term. This performance manipulation is then shown to be driven by incentives to win the tournament competition: A top bureaucrat’s performance exaggeration increases with the performance of his political rivals, particularly the economically comparable ones. Further evidence suggests that performance exaggeration leads to higher chances of promotion, but the ratchet effect and the potential to blame predecessors promote restraint.

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