Abstract

Bureaucratic information manipulation is widespread, yet effective interventions and potential economic impacts remain underexplored. This paper provides the first causal evidence by leveraging a 2009 reform in China. The reform increased penalties for data manipulation by county governments, but the detection relied on survey teams pre-deployed in 40% of the counties, enabling a difference-in-differences design. Using various newly collected data at or below the county level from 2005 to 2018, I demonstrate that the reform decreased county GDP growth manipulation by about 5%. Instrumental variable estimation employing a unique random assignment rule generates similar findings. In response to the reform, government policies shifted in directions conducive to economic growth, bank loans and deposits expanded, firm entry increased, and citizens' attitudes toward governments improved. Corruption remained unaffected. These findings are consistent with data manipulation diverting local governments' attention away from economic development and, thus, highlight the cost of a less-examined bureaucratic misbehavior distinct from corruption.

For further information contact giovanna.tramontano@unibocconi.it.