Government discretion: how high a barrier to entry for Chinese private enterprises?

Abstract

A robust literature has demonstrated that de jure regulatory barriers to entry deter firm formation. This paper identifies the discretion available to government officials in tollbooth positions to establish barriers to entry as a de facto policy barrier which is an important source of uncertainty for Chinese entrepreneurs. Defining discretion as the share of provincial government revenue deriving from discretionary charges levied by government departments, I estimate the impact of discretion on the formation of Chinese domestic private enterprises. I find that a 1% decrease in discretion is associated with an additional private enterprise for every 10,000 provincial residents.