The Grabbing Hand on the Road: Local Fiscal Pressure and Construction of Traffic Surveillance System in China

Local governments may resort to extra-budgetary revenues, such as traffic fines, when being in fiscal distress. 

This may distort transportation choices and deteriorate the access to market. This paper collects traffic monitoring equipment procurement announcement data from 2014 to 2019 in China to examine the impact of local fiscal pressure on traffic cameras procurement. We exploit the comprehensive "business tax to VAT" reform in 2016 as an exogenous shock to local fiscal revenue. 

We find that in regions with better road access, when local governments face more fiscal pressure, they will significantly procure more traffic cameras. This effect is more pronounced in areas with poor institutional environment, low fiscal transparency, and weaker leading officials. Increasing procurement in traffic cameras is associated with more revenues from fines, more public appeals about traffic fines, and less market entry. 

This suggests the hidden fiscal incentives underlying the construction of surveillance system in China.

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Speaker: Professor Liang Pinghan  (Sun Yat-Sen University)

Host: Dr Sisi Sung