Target-Based GDP Manipulation : Evidence from China

GDP manipulation is one of the typical manifestations of hidden actions due to the principal-agent problem. We novelly apply the McCrary Test and Censored MLE to identify and quantify target-based GDP manipulation by constructing a ratio form approach. We find strong evidence of target-based GDP manipulation in China at the prefectural level, and 7.34% of cities over-reported GDP in order to meet their targets from 2000 to 2018. Moreover, we find that reducing the weight of economic performance in local government achievement assessments and adopting soft restrictions when setting targets are effective to mitigate GDP manipulation