The Impact Of Local Fiscal Budget Revenue And Expenditure Preferences On Urban Land Use

Decentralization is a worldwide trend.Although there is no unified conclusion about the promoting effect of decentralization on economic growth,but the significant effect on the economic growth of China's fiscal decentralization after tax system reform is recognized.However,along with the rapid economic growth,issues of Chinese-style decentralization begin to highlight.After tax reform,the local governments become to be relatively independent stakeholders.Facing huge financial pressure,local governments have the strategic behavior to pursue the maximization of fiscal revenue,which lead to the local taxes preferences.While because of the combination of the economic decentralization and vertical political management system in China,local governments pursue rapid economic growth in short-term behavior,which lead to the expenditure bias.It is in the incentives and constraints of these institutional factors,local governments' economic and political incentives form "incentive compatibility",which resulting in the behavior of local governments simply pursue the economic growth.Reflected in the city level,as a leader in urban development,local governments are generally interested in the expansion of urban land scale,which resulting in a waste of land resources.This paper provides a framework to fully account for how local government behavior impact urban land use change after tax reform,examining the existence of local governments' growth orientation and studying the local governments' revenue and expenditure structure bias and distortions in fiscal decentralization and government competition.China's financial system has experienced three major changes,from unified revenue and expenditure to grading lump sum and then to the tax-sharing from.Every reform has different effects to local governments' behavior preferences,and also to the land use change.Under the highly centralized mode of unified revenue and expenditure phase,local governments' have no financial autonomy.In behavior,they prefer to ask the central government for more available resources.Fiscal revenue varies along with expenditure in this period.At this stage,local governments are not motivated to develop industry and infrastructure,and therefore occupy less land.Decentralization of fiscal responsibility mobilizes the enthusiasm of local governments to increase local fiscal revenue.However,because of the irregular system,there are a lot of opportunistic behavior and game behavior between central and local governments,which greatly limiting local governments'financial autonomy and causing unequal financial authority and powers.And finally,local governments begin to store wealth in the people.The enterprises have become the first source to get fiscal revenue,which lead to the indiscriminate occupation of land in this period.The specification between central and local governments of tax reform causes the local governments losing the decision of local revenue,but still mastering the expenditure.In order to get more revenue,local governments often adapt to urban sprawl to achieve the increase of revenue,and because of the budget tax preferences,they all chose the same dominant(hot spots)industry,which resulting in a regional industrial isomorphism.While fiscal expenditure is putted into the infrastructure construction that can quickly bring economic growth,resulting in regional redundant construction and the rapid expansion of urban land.Changes in the total tax revenue and increase reflects the efforts of the local governments make for tax preference.Measured in 30 provincial-level panel date,we found that:decentralized and competitive systems have different affects to local governments' tax efforts and bias,but the role they play to business tax and income tax is consistent,which empirically prove the fact of local governments' tax efforts.And under decentralization and competition system,local government formed the distorted expenditure structure.Study found that:public goods supply is related to its spillover,and deteriorate with increasing spillover effects.Although Infrastructure construction's spillover may also exist in reality,but as a regional public goods limited its spillover effects.While human capital has strong liquidity,and as higher level of education,the fluidity is higher.Therefore,local governments will be more inclined to compete for talent rather than personnel training,which resulting in a reduction of investment in human capital.Since the central vertical control of local officials,local governments' expenditure structure is influenced by the length of the term of office.The shorter the term of office of local officials,the greater infrastructure will be invested.In GDP target performance evaluation system,in order to win the promotion competition,local governments will inevitably use the limited resources to the infrastructure that can promote rapid economic growth,thus ignoring the public goods supply,which resulting in a distortion of expenditures structure.Description statistical analysis of fiscal expenditure structure doesn't get the economic construction bias of local governments,but the VAR model impulse response function and variance decomposition results show that the economic construction expenditure has a larger contribution rate to GDP in short term,while the science education expenditure has a larger contribution rate in long term.Due to the limit of the official's tenure system in China,in order to win promotion,local governments will inevitably increase the expenditure that can stimulate economic growth in the short term,causing "theavy hard and soft light" fiscal expenditure.Through reviewing the evolution of urban land use structure in China from 1981 to 2010,we found that the local government formed a cycle path on the strategy of land supply with Chinese characteristics.Based on the panel data of China's 35 cities of the provincial capital cities and cities under separate state planning,we empirical analyzed on the real estate tax preference and industrial tax preference influence on urban residential land,industrial land,and found that the local government's bias of the real estate tax is in a significant reflection of the supply of residential land,the stronger the estate tax preference,the local government tend to supply more residential land;the stronger the VAT preference,the local government tend to increase the supply of industrial land,which shows that the mechanism that tax revenue preference drive local government to develop related industries and increase the land supply is existing.Local government fiscal preferences also decided the construction land supply structure,the greater the ratio of value-added tax and real estate tax,the greater the proportion of industrial land in the urban construction land;On the contrary,the smaller the ratio,the greater the proportion of residential land.The greater the ratio of local government's fiscal expenditure and revenue,land transfer of extra-budgetary revenue preference is stronger,and the proportion of residential land in the urban construction land is greater;On the contrary,the smaller the ratio,the greater the proportion of industrial land.Select panel data model of the 16 core cities of the Yangtze River Delta region from 1999 to 2010 to analyze the impact of the basic construction spending bias on the infrastructure land,we found that local government infrastructure spending bias has significant positive effect to the expansion of urban infrastructure land use,and the extent is strengthen with the upgrade competition for investment promotion and capital introduction;The influence of competition for investment promotion and capital introduction is also positive for infrastructure land use,the influence extent size is also affected by the basic construction spending bias.That is to say,the stronger the bias of the basic construction spending,the more intense of the region's investment promotion and capital introduction competition,the greater the size of urban infrastructure land.Select panel data model of the 16 core cities of the Yangtze River Delta region from 1996 to 2010 to analyze how decentralization and competition affect the urban land scale,the results show that:the local fiscal expenditures preference has the biggest impact on urban land expansion,which suggests that the stronger the local government infrastructure spending preference,the faster the urban land expansion;And when local governments tend to science-education-culture-health expenditure,the expansion of urban land will slow down.This results confirmed from the empirical level that the local fiscal expenditure preference has the effect on the expansion urban land.Fiscal decentralization and local government competition in each combination models are significantly positive.So we can judge that fiscal decentralization lead local governments to obtain income by seeking the way of developing urban land,and at the same time,in order to gain an advantage in competition,local governments tend to attract large-scale investment by taking low-cost strategy of selling land,which lead to large-scale urban land expansion.This result confirmed from the city level that the decentralization and competition system is the important reason for the rapid expansion of urban land scale.View from the difference of urban land expansion,Nanjing is the fastest expansion city of urban land,which followed by Shanghai,Suzhou and other cities.Zhoushan has the slowest expansion speed of urban land,which is followed by Huzhou.Therefore,the faster the economic developed,the faster the urban land expanded.The region of fast economic development,the rapid growth of population and economy will demand more land space to give support,thus the faster the rate of urban land expansion.It is not difficult to find that fiscal decentralization reforms did not realize the balance of power between the governments.These problems are rooted in deep-seated institutional factors.Therefore,in order to fundamentally change the behavior of the local government incentives,and to guide rational and sustainable use of land,based on the actual situation of China,we need to improve the existing financial system,to regulate the financial revenue and expenditure of the central and local governments,and to reform the current performance evaluation system and maintain the continuity and stability of office.At the same time,deepening the reform of China's household registration system,breaking the residents' migration institutional barriers,and finally realizes the mechanism of "voting with their feet".Further deepen of "business tax to VAT" tax reform is needed,which inhibiting the expansion of the real estate industry;Established a residential and industrial land link mechanism,and the scientific statistics of the urban population and housing demand is needed.