| Abstract | This paper investigates the growing government size and previously failed attempts to downsize the government from the perspective of interest divergence within government organization. We think the division of labor and “collective leading” within the local leadership, consequently the need to balance power within leadership, play an important role in maintaining a big government. Using the information about the membership of provincial party stand committees, we construct a measure of interest divergence within provincial leadership during 1992-2011. Both the Fixed-effect model and the instrumental variable model demonstrate that the extent of interest divergence significantly increases the number of provincial leaders, and expands the government top-down. Our analysis shows that a bigger government is associated with larger SOE size, lower social and private sector investment, and stagnated marketization level. Our results are robust even if we take into account the fiscal income, fiscal decentralization, openness, urbanization, firm size, marketization, as well as the power of the party secretaries, etc.. Therefore, we suggest that deregulation and imposing constraints on executives is key to controlling government size and promoting reforms within public sector. |