A Research On China’s Land Finance And Local Government Behavior

After the tax reform in1994, China has formed "asymmetric"(Zhang Jun,2003)fiscal decentralization, because the central government and local governments areseriously lack of coordination in the distribution of financial power and the localgovernments have a serious fiscal deficit. In the case of the land resources, land financehas become a good way to increase revenue. Subjectively, under the pressure of financialconstraints, the local government officials who want to demonstrate the performancetarget make use of the land allocation system which is not complete to increase thebudget. As Chen Zhiyong, Huang Xiaohu, Li Yongle and other points of view, as a kindof economic phenomenon, Land finance reflects the complicated behavior of localgovernments. In order to solve the land finance better, a deeper understanding of thesebehaviors is essential.Based on the system of fiscal decentralization in China (vertical competition) and thelocal competition system (Horizontal competition), this paper introduces the land financelocal government behavior theory in details, analyses the existence of the latent crisisbecause of the local government’s dependence on land revenue and explains theinstitution incentive implicated on government behavior behind the economicphenomenon of land finance. In theory, in the short term, land finance promotes localeconomic development, employment, and urbanization, but in the long run, it will bring aseries of low efficiency in social policy and economic impact. Through the establishmentof Chinese Provincial Panel Data Model, we can discover that Chinese styledecentralization encouraged local governments to turn the "grab hand" from the "helphand"(Shleife and Vishny,1998; Zhang Jun, Leann,2008). The local governments haveseized the capital which is out of budget. Because the local government competitionsystem stimulates the officials’ promotion of enthusiasm, and they take the irrational landfinance strategy actively, to occupy the initiative in the competition. There exists a hugedifference in the incentive system. This paper also puts forward some proposals for the reform and further improvement, for example, how to redistribute the financial authorityand powers of the central and local governments, how to rebuild a standard local landsystem, how to reform the promotion system of local officials, how to optimize thegovernment competition, and how to strengthen the government’s macro-control.