Target-based GDP manipulation: Evidence from China

Abstract

GDP manipulation is a prevalent form of hidden action, often arising from the principal-agent problem. Utilizing Bunching Estimation within an innovative ratio form approach, this study identifies and quantifies target-based GDP manipulation. Our empirical analysis offers evidence of such manipulation at the prefectural level in China to meet predetermined targets. However, China’s target-based GDP manipulation is diminishing over time. Furthermore, the findings suggest that reducing the weight of economic performance in local government assessments and adopting the soft target-setting restrictions have served as effective strategies to significantly mitigate China’s GDP manipulation in recent years.