Empirical Research On The Cause And Effect Of "Land Finance"

As China’s industrialization and urbanization progresses, the land system has played an important role in China’s economic growth. With the "land development" model increasingly becomes the choice of the local government, the scale of land finance is expanding. Around the causes and impacts of land finance, theorists conducted a lot of research. About the causes, there are mainly two views of "land finance" and "competition to attract investment",the former emphasizes the financial incentives faced by local governments after the tax reform, the latter more emphasis on performance evaluation and promotion competition faced by the local government. Current literature research, focusing primarily on one idea, the literature is relatively small for taking into account the two points of view together, and there are some problems of the variables used in the empirical analysis. Therefore, there are necessary for further research in this area.About the Impact of land finance, the literature more concerned about the economic growth, but the behavior of the local government on land, is bound to affect the structure of budget expenditure. Scholars have spent a lot of time studying the structure of fiscal expenditure problem, but either separated the budgetary funds and extra-budgetary funds or merge without distinction. There are few studies on how the extra land revenue impacts the structure of budgetary expenditures, ignoring the organic links of local and outside budget. Therefore, from the perspective of land to analysis local fiscal expenditure structure, will make up for this shortcoming.In this paper, we use data of 2007-2012 from 17 cities in Shandong Province to analyze the causes and effects of land finance for a more systematic study. This paper is divided into six sections:The first part is an introduction, including research background and significance, related concepts, methods and possible innovation and shortcomings.The second part is the literature review, mainly focus on the causes and effects of the land finance, including China’s land system, tax reform, local government competition and policy choices, the effects of the land finance on financial expenditure structure.The third part taking Shandong Province as examples, analyze the current situation of land finance and financial expenditure structure. It found that fiscal decentralization and competition work together on the land finance and financial expenditure structure.The fourth part, use data of 2007-2012 from 17 cities in Shandong Province and the panel regression model to make empirical analysis of the causes of the financial land. The study found that the fiscal pressures facing local government after the tax reform and the promotion competition under the fiscal decentralization of local government, together act on the rapid growth of local government land finance: financial pressure of local governments making them manage the land for revenues; promotion excitation with GDP as the core performance evaluation, making the local government compete for investment through low-cost transfer of industrial land selling commercial and residential land to provide financial support for the competition at high prices; and in Shandong Province the effect of competitive for investment with land is slightly larger the pressure of fiscal decentralization.The fifth part makes empirical analysis of the effect on fiscal expenditure structure of land finance. The impact of fiscal decentralization measured by self-financing degree on fiscal expenditure structure:the proportion of economic spending and administrative expenses increase while the public spending on people’s livelihood declines. The impact of promotion competition with land:the proportion of economic expenditures increases while public expenditure on people’s livelihood and administrative expenses expenditures decline. It show that the land finance do not reduce the incentive for investment, in the construction, there is no free up more money to achieve good wishes for social service expenditures, and therefore the land finance did not play a corrective role for budgetary expenditures structure of "heavy investment, light service", which also shows the financial co-ordination within and outside of the budget is not ideal. How to establish a budget of full-bore and optimize fiscal expenditure structure presents a serious challenge.The sixth part is the conclusions and recommendations. For fiscal decentralization and promotion competition influence the land finance combined, our financial reform not only needs to further improve our tax system, including a clearer division of powers at all levels of government, property rights, building of local tax system and improving the transfer payment system. Reform of local government competitive assessment mechanism, optimizing performance assessment indicators and land revenue expenditure management are also necessary.