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ObjectivesWe examine political connections at the horizontal level of local government officials and their impacts on economic growth in China.MethodsWe identify two types of horizontal networks: hometown tie and alumni tie, and analyze the biographic data of the top officials of 256 prefecture‐cities during the period of 1999–2013.ResultsWe find a positive relationship between city leaders' hometown tie and economic growth, measured by either the relative GDP per capita growth rate or the GDP per capita growth rate. Furthermore, we find the positive relationship is more profound in the low market‐open cities. However, we do not find any significant impacts of the alumni tie on economic growth.ConclusionsThe hometown tie improves the city leaders' economic performance.

AbstractInnovation is crucial for technological progress and economic development. Using the value‐added tax (VAT) reform in China as a policy shock, this study explores whether tax incentives are beneficial in promoting corporate innovation. We find that the VAT reform has a significant positive impact on corporate innovation, and the finding holds under a series of robustness checks. Mechanism analysis suggests that the VAT reform promotes firms' innovation activities mainly by alleviating financing constraints and amplifying research and development intensity. This study offers policy implications for using tax policies to stimulate corporate innovation.