Study On Land Finance And Public Goods Supply

Since the reform and opening-up policy, the economy in China has been increasing rapidly with the reform in its fiscal system. Since the tax-sharing fiscal system has been implemented in 1994, the local government should share its main tax with the central government, the general fiscal revenue has been decreasing heavily. However the responsibility of public expenditure exists. The gap between fiscal revenue and expenditure expands gradually. As the economy performance is the main criteria to promote, the local government would have to put the limited fiscal revenue into industries that relate to the economic growth directly. As the existing studies point out, the public goods should be supplied by the local government, and public goods could be classified into two part, the economical public goods and the non-economical public goods. The economical public goods mainly consist of infrastructure item, the non-economic goods mainly consist of public service item. In the local government’s working performance function, the economical public goods is related to the economic growth directly, whereas the non-public goods’ contribution to economic growth could not be reflected soon. In this background, the local government tends to supply more economical public goods and less non-economical public goods. The structure of public goods supply is out of balance.Faced with the pressure of local fiscal gap, the local government would have to seek off-budget revenue to make the fiscal ends meet. With the dual land-use system in urban and rural area, the local government could levy the rural land with low cost and transfer it into urban construction land. Through this method, the local government could gain high surplus value of land."Land Finance" becomes the important fiscal revenue that could match the on budget revenue, it is also an important financial resource of local public goods supply. While the land finance could make the fiscal ends meet, the local government could choose to invest it into economical public goods or the non-economical public goods. This is also the main content in this study.Using the time series data of Wuhan from year 2000 to 2012, we try to analyze the land finance’s impact on the structure of public goods supply in the case of Wuhan. Empirical research finds that with the growing land revenue, the economical public goods supply increases rapidly, whereas the non-economical public goods decreases. It could be concluded that land finance is one of the reasons for the out of balance of public goods structure. At last we give the suggestions to solve this problem.