Does flattening government improve county-level economic resilience? Evidence from the Province-Managing-County reform in China

Improving regional economic resilience is a key goal for governments around the world to address global economic instability. This paper employs a quasi-natural experiment of “Province-Managing-County” (PMC) reform in China, uses a time-varying DID method to investigate the mechanism and the impact of the flattening government on county-level economic resilience (CER) in China. Through empirical analysis of county-level data in China from 2000 to 2020, we found that government flattening significantly improved CER. The heterogeneity test results indicate that cities located in eastern China, regions with higher levels of economic development, and industries with higher levels of industrial upgrading are more affected by PMC reform. A reliable mechanism indicates that PMC policies effectively affect CER by promoting fiscal self-sufficiency, narrowing the urban-rural gap, and improving local innovation levels. Therefore, government should promote and improve PMC reform to address regional disparities and enhance local fiscal capacity, which is an important measure to enhance regional economic development.