The research paper “Land financialization and debt expansion: Evidence from city–county mergers in China” by researchers Lu Yuanping and Gao Sihan from IIDPF was published online in Cities (JIF: SSCI Q1; JCR: 3rd of 43), the internationally renowned journal.
Abstract
This paper discusses the “land-debt” financing pattern in China in the context of local governments under fiscal pressure and analyzes the development and economic effects of land financialization. Using a difference-in-differences approach based on the exogenous shock of city–county mergers, we find that city–county mergers significantly boost local governments' debt issuance, causing land financialization. City–county mergers relax land resource constraints on local governments, increasing land held by local government financing vehicles (land mortgages) and land transfer revenue (land guarantees). Accordingly, it is as such an impact mechanism rather than a fiscal pressure that mainly leads to debt expansion. We also document that this effect is more pronounced in China's central and western regions, where land is more correlated with local economies; in periods when the central government does not regulate local land financing; and in areas where officials have strong promotion incentives. Further analysis reveals that most of the debt funds raised by city–county mergers are used for infrastructure construction and loan repayment, and the increasing debt risk of local governments should also be a matter of concern.
Brief Bio
Lu Yuanping is a professor at the School of Public Finance and Taxation, a PhD supervisor, Deputy Head of the Department of Scientific Research, a Wenlan Young Scholar, and a selected member of the Hubei Provincial Important Talent Project, the Executive Director of IIDPF. His research areas include income distribution and common prosperity, social security and fiscal policy, and happiness economics. He has presided over more than 20 national and provincial programs, including the General Program of the National Natural Science Foundation of China (NSFC), the Youth Program of the NSFC, the Humanities and Social Sciences Fund of the Ministry of Education, and Ministry of Finance Provincial Joint Program. He has published more than 40 papers in SSCI/CSSCI, and his research results have appeared in Economic Research Journal, China Economic Quarterly, Journal of Financial Research, Finance & Trade Economics, Economic Perspectives, Journal of Happiness Studies, China & World Economy, The Social Science Journal, etc.
Gao Sihan, PhD in Economics of Wuhan University, is an assistant professor and master's supervisor at IIDPF of ZUEL. Her research interests include income distribution, fiscal theory and policy, development economics and new institutional economics. Her research results have been published in China Rural Economy, Issues in Agricultural Economy, Economic Theory and Business Management, China Economic Review and other authoritative journals at home and abroad, and she has presided over or participated in several national and provincial programs, such as the major program of National Social Science Foundation of China and the general program of Hubei Social Science Fund.