on this assumption.<sup>7</sup> We find a large, positive and significant effect of over-reporting on promotion, while the effect of reported growth is less pronounced and robust. Our results suggest that if performance metrics are susceptible to manipulation, performance-based competition among China’s sub-national governments can facilitate GDP manipulation, and reduce the effectiveness of the tournament competition system for regional development. We also point out and offer evidence that the ratchet principle tends to limit the extent of over-reporting. Relatedly, our paper also contributes to the literature on political cycles,<sup>8</sup> especially those in China (Guo 2009; Nie, Jiang, and Wang 2013; Xi, Yao, and Zhang 2018). While this literature on China attributes promotion incentives as arising from tournament competition, it does not empirically document such competition. We add value by empirically modeling the strategic competition among political peers using spatial econometric models, as well as considering the degree of political competition.<sup>9</sup> Finally, we provide the first piece of evidence on ratchet effects in tournament competition among local governments, adding to the emerging literature on growth target setting (Li et al. 2019).

In the rest of the paper, Section 2 introduces China’s bureaucratic system and GDP accounting system. Section 3 describes the data, and section 4 introduces the empirical strategy. Section 5 presents the results on the political cycle effects. Section 6 investigates the political rival effects of performance manipulation. Section 7 discusses the effect of performance manipulation on promotion, and the circumstances for local bureaucrats to restrain performance exaggeration. Section 8 concludes.

# **2 Institutional Background**

## **2.1 China’s bureaucratic system**

7 Another study also examines politician incentives and GDP manipulation. Chen, Qiao, and Zhu (2021) focus on the effect of different stages of politicians’ careers on local officials’ GDP manipulation in China. We differ from this study in many ways. First, we focus on the political cycle effects. Second and more importantly, we explore how performance manipulation is related to political rivals’ manipulation, especially comparable rivals, as well as the degree of political competition, but not geographical neighbors. We are thus able to offer evidence of direct political mechanisms of tournament competition in inducing performance manipulation. Third, we painstakingly construct more comprehensive measures of career track based on _real power_ rather than just administrative ranks, and use it to provide evidence that performance manipulation pays for career advancements. Fourth, we show that the ratchet effects and the opportunity to scapegoat predecessors explain why some bureaucrats would restraint performance manipulation. Finally, we offer improvements in empirical details: (1) we use a relatively long period of data, which improves the credibility of the results as studies have shown that the studies on local political incentives are fragile with data with different time coverage (Shih et al. 2012; Landry 2003); (2) we employ prefecture-level data in contrast to the county-level data of night light data to predict GDP, which represents an improvement in predicting real GDP since Gibson et al. (2021) caution that the predictive performance of the night light data (i.e., DMSP) is less accurate for lower-level spatial units, for lower density areas, and for smaller areas.

8 For the general literature in this area, see Nordhaus (1975), MacRae (1977), Rogoff (1990), Shi and Svensson (2006), and Labonne (2016).

9 Yu, Zhou, and Zhu (2016) and Shi and Xi (2018) employ similar spatial econometric models to estimate the strategic competition among city governments for GDP growth and coal mine deaths respectively, and find positive neighborhood effects among cities in the same province, particularly those with similar economic ranks.

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