Rethinking government behavior: Local government self-interest and economic development quality

Abstract

This paper aims to investigate the nexus between local government self-interest and the quality of economic development by embedding them within a unified analytical framework. It first constructs a theoretical model to decompose the multifaceted interests of local governments, followed by a theoretical analysis of their various manifestations. Using panel data from 31 regional units in China spanning 2005–2020, this study conducts a baseline regression with two-way fixed effects. After implementing robustness tests and mitigating endogeneity issues through appropriate econometric strategies, the core findings remain statistically consistent. The research establishes a causal relationship between local government self-interest and economic development quality, identifies the transmission channels of this impact, explores its heterogeneous effects, and examines the temporal persistence of local government self-interest on development quality. Key conclusions are as follows: First, local government self-interest impedes the enhancement of economic development quality, with fiscal revenue and expenditure mechanisms serving as critical transmission channels for this negative effect. Second, the impact exhibits heterogeneity: in more developed regions , the adverse influence is relatively attenuated in contexts characterized by higher marketization levels, greater fiscal decentralization, and more advanced population aging.Third, this adverse effect will persist for four years.