Abstract Why would a strong authoritarian state choose not to enforce its own policy? We extend the theory of forbearance to autocracies, highlighting its distinct incentives and characteristics. Using China’s social insurance policies as a case study, we argue that promotion-driven local officials under intense interjurisdictional competition allow firms to evade payroll taxes to boost economic performance and advance their careers. This effect is most significant among domestic private firms and foreign firms. We conduct one of the first systematic analyses of firm-level social insurance contributions in an authoritarian context, supplemented by individual-level survey data. Our findings show that bureaucratic forbearance of China’s social insurance policies has a pro-business bias, undermining the policies originally designed to address inequalities during market reforms.
Zhang et al. (Tue,) studied this question.