Budget Structure Discontinuity: Unveiling Mechanism and Connecting Logic in China’s Context

While budget structure discontinuity signals decisional shifts, it has not been studied in depth in China’s context. We identify and explain budget structure discontinuity in 31 Chinese provinces between 1996 and 2018. We identify that fiscal expenditure on economic development and on science, education, culture, and healthcare (SECH) are more discontinuous, while expenditure on public safety is more incremental. We find that because Chinese provincial leaders have strong incentives to outperform predecessors and leaders of other provinces for better promotional prospects and transfer payments. New chief leaders gather political authority as their tenure increases and utilize their authority to overcome institutional inertia to achieve political missions, causing budget discontinuity. We empirically verify our mechanism and find that leaders strive for the upper reaches in economic development and approach the national average in SECH. With our mechanism, we form a coherent logic chain among institutional arrangements, budget discontinuity, and fiscal performance.