Removing the “Hats of Poverty”: Effects of ending the national poverty county program on fiscal expenditures

This paper investigates the effect of the cancellation of China's program of “national poverty counties”—a place-based policy—on county-level fiscal expenditures. Our difference-in-differences results indicate that the cancellation reduces the county fiscal expenditure-to-GDP ratio by an average of 3.78%. To support a causal interpretation of these findings, we provide two plausible explanations, the reverse flypaper effect and the active/passive waste effect. Our findings survive the consideration of selection bias, omitted-variable bias, and spatial correlation. Policy implications of our findings are also discussed. •This paper investigates the effect of the cancellation of China's program of “national poverty counties” on fiscal expenditures.•Ending the program reduces the county fiscal expenditure-to-GDP ratio by an average of 3.78%.•Our findings survive the consideration of selection bias, omitted-variable bias, and spatial correlation.