Political patronage, rent-extraction, and social costs: Evidence from China's environmental cleanup

Abstract

This paper investigates how informal political patronage subverts environmental regulation and local economic performance in China. We demonstrate that patronage provides local officials with political insurance, enabling them to safely shield polluting firms from top-down enforcement. Contrary to the promotion tournament hypothesis, this forbearance does not drive GDP growth. Instead, it is sustained through localized rent extraction. Utilizing firm-level data and shocks induced by provincial party secretary turnover, we find that connected officials extract a political tax, measured via perk expenditures, from both polluting and non-polluting enterprises. This systemic extortion generates broad negative spillovers: while shielding incumbent polluters, patronage crowds out productive investment and deters clean market entrants, ultimately degrading both environmental outcomes and the regional business environment.