The Intergenerational Effects of Political Influence: Evidence from China

This paper considers the effects of fathers’ political influence on their offspring’s labour market outcomes in China. Political influence refers to the ability to convert political power into economic benefits. This study identifies the dissolution of political influence by exploiting an age-based mandatory retirement rule in urban China. It exploits the variation of political influence in three dimensions: bureaucrat status, retirement status, and offspring gender. A difference-in-differences approach shows that the retirement of a bureaucrat translates into a 13 per cent decrease in offspring’s income. A triple-differences approach suggests retirement of a bureaucrat father translates into a 27 per cent decrease in earnings among sons. Retirement of a bureaucrat father is associated with larger income losses for offspring working in the same industry sector as their father and in industries that have a high concentration of assets or that are controlled by the state. This paper adds evidence to the growing literature estimating the economic benefits of political connections.