CCER讨论稿:Empowering through Courts:Court Capture and Municipal Financing in China

发布日期:2024-04-09 10:41    来源:

E2024004                                                                              2024-04-07

Jiayin Hu, Wenwei Peng, Yang Su

The economic consequences of judicial independence have been widely documented in various contexts. In this paper, we show that alleviating court capture by local governments can inadvertently undermine local governments' borrowing capacity. By exploiting the staggered roll-out of a judicial organizational reform that aims to alleviate local court capture in China, we find that alleviating court capture can reduce judicial bias favoring local governments. Since the majority of government lawsuits involve contractors and suppliers rather than creditors, creditors especially bond creditors are inadvertently disadvantaged, leading to higher government borrowing costs, lower borrowing capacity, and reduced spending. This effect occurs despite the fact that contractors and suppliers respond by offering slightly lower prices ex ante.

Keywords: independent judiciary, court capture, lawsuit, public finance, municipal debt capacity, municipal corporate bond

JEL classifications: G12, G30, H70, K40