Budget rollover and year-end spending in China: evidence from public procurement contracts

This paper exploits the reform of China's Budget Law, which restricts the rollover of fiscal surplus across years, to examines the impact of UILI (use-it-or-lose-it) budget rules on year-end spending spikes. We analyze the universe of public procurement contracts from 2014 to 2021 and develop a method to assess contract quality. We show substantial surges in procurement contracts at the end of the year, which are more likely to be of low quality. The difference-in-difference model indicates that after the reform, local governments award 25.8 % more procurement contracts and double spending on procurement in the last month of the year. The year-end spending surges concentrate on goods and construction projects procurement, high-value contracts, and favor local suppliers. It is likely that UILI rules intensify budgetary uncertainty embedded in hierarchical allocation of fiscal fund.