Topic：Fiscal Incentives and Land Finance Cycles of Prefectures in China

Speaker：CAI Bi-han (Assistant Professor, Zhejiang University)

Time：10am, May 2, 2018

Site：EMS B228

Abstract：Land finance, referring to the local governments who sustain their fiscal expenditure by the revenue generated from land leasehold, has become one of the important major sources of fiscal revenue for Chinese local governments. The spatial allocation of land use constitutes a land-leasing policy operation of local officials, contributing to China’s local economic development and fluctuation. Applying data from 283 prefectural units in China from 2003 to 2012, this paper explores the existence of land finance cycles, focusing on the changes of the amount (as in “area”) of land leasing by negotiation or by auction. The empirical results suggest that land finance cycles in China synchronize with the PCCP (Provincial Congress of the Communist Party) cycles, in which a prefectural leader decreases the amount of land leased through negotiation and increases that of land leased through auction prior to the year of the PCCP. The findings of empirical results are consistent with the prediction of our theoretical model. Additionally, due to the existence of high uncertainty of prefectural leaders’ tenure and political turnover, the effect of prefectural leaders’ tenure on land finance cycles is more apparent in the early years of their tenure. The results indicate that Chinese leaders’ fiscal strategies are likely to be driven by career concerns for the purpose of maximizing a measured economic performance and fiscal rents.