Compensation For Takings Of Land

When China was a capital-scarce economy at the beginning of its establishment, the distorted product and factor prices was adopted to facilitate the implementation of the heavy industry-oriented development strategy, thereby driving the rapid growth of China’s industrialization and economic development. The suppressed prices of agricultural product, as an important way to promote industrialization, was adopted from 1953 to 1978. The distorted cost of land taken was adopted recently to support the development of industrialization and urbanization as what the government done from 1953 to 1978. The difference between the benefit of transferring the land and the cost for takings of land prompted the local government to adopt expropriation to acquire cheap land from farmers and to transfer the land expensively. A large number of farmers excluded from the process of urbanization, could not share the interests of industrialization and urbanization by the land rights. The long-term urbanization biased land system making the local government rely on the "land finance", led to the inefficient industrialization and urbanization. It also infringed the land rights of farmers, causing the illegal land-use phenomena widely. As China is in the economic transition period, transferring the mode and adjusting the structure is the important strategic adjustment on the economic development model. Moreover, as the rapid urbanization trend is weakening, "accelerated urbanization should no longer be the main theme of China’s urbanization development." The inherent law of the speed of urbanization gives us the opportunity to accelerate the implementation of the reform for land acquisition system. Over the years, the local government administratively intervening the urbanization process, and vigorously promoting the land urbanization, did not comply with the general rules of urban development. Researching how to adjust the land expropriation system, to ensure the empowerment of the people, to constraint the expropriation impulse of the local government is important. This article focusing on the compensation for takings for land, attempt to build a comprehensive solution about land expropriation and general standard for compensation.First, the article describe the system of land ownership, the system of land expropriation and the system of land expropriation compensation from the perspective of institutional change in China. It was found that the land system cannot adapt to the current economic development. Integrated land market should be built under the new historical conditions. The model of discrimination economics is used to prove that the current land policies are not conducive to improving rural and urban social welfare and low compensation standards imposed to reduce the cost of land taken by local government (the presence of fiscal illusions) changes optimal structure in land transferring and reduces the efficiency of urban construction land.Secondly, the article proposes a comprehensive solution about compensation for land acquisition. First, the public interest has been defined and the land acquisition compensation policies outside the country and region are investigated. Based on several assumptions that the local government will use the eminent domain to maximize the social welfare, to maximize the individual income and to maximize revenues, the optimal standards of compensation for land taken were constructed under the open market conditions. Then, based on the analysis of the status quo of China’s land ownership and government behavior, the article suggests that China should establish an integrated land market. The formation of land market prices can be used to compensate the land expropriated by local government for public interest. Second, the issue of compensation for expropriation of agricultural land was analyzed. Because of the positive externality of agricultural land, free circulation of using rights of agricultural land is not conducive to the public interest, such as food security. Using the experience of other countries for reference, the approach of TDR program should be introduced into China. Through the transferring transactions of land development rights, the formers can enjoy the benefits of urbanization and industrialization. Describing the emergence and development of foreign land development rights, the models are established to explain that the purchasing and transferring of land development rights are in favor of fairness and efficiency. The feasible path is set for the system of land development rights in China, so that compensation for land development rights should be paid for the persons whose land has been taken for public interest by local government. Third, by discussing the expansion explain of the public interest, it is possible that certain public interest are in private hands. And then the article analyzes the circumstance of land fragmentation. The necessity of authorizing the eminent domain to private persons is proved for the existence of monopoly and free-riding problem due to the concentration of land under the current conditions of rural land fragmentation. But there are some strict premises should be met for authorizing the eminent domain to private persons that the land should be used for public interest and the compensation should be the fair market price. In addition, free transaction should have been used in advance referring to the British system of compulsory acquisition of land.Finally, the feasibility study of the comprehensive solution proposed above is analyzed. The data is used to investigate that the property tax can be used to substitute the land finance faced by local government or not if the local government never capture the benefit by using the eminent domain to transferring the land. Although the current data suggests that the real estate tax revenue is not sufficient to replace the current land finance, the paper still believe that the land acquisition compensation scheme can still be implemented with the transformation of government functions and the reform of fiscal and tax systems.This study is based on comparative analysis and normative analysis. First, there are many mature experience in other countries and regions in the world. It is important for us to understand and reform the compensation system of land taken in China by comparing and learning the experience of these countries and regions in the world. The article proposes the comprehensive solution about compensation for land acquisition by comparing and learning the experience of these countries and regions, such as United States, Britain, Germany, Japan and Taiwan. Experience of Transfer Development Rights in United Kingdom and United States are used to design the system of land development rights. The necessity of authorizing the eminent domain to private persons is discussed by learning the system of compulsory purchase of land in UK. Second, the focus of this article is a typical normative issue "what should be". So the comprehensive solution proposed in this article is based on the hypothesis that the system of comprehension should be used to maximize the social welfare and on the strict logical reasoning used to prove that the compensation solution is the optimal solution according to the objective. Furthermore it is modified to fit the status quo of China in support of this program. In addition to the above methods, the paper also uses the method of institutional changes to analyze the historical changes of the system of land expropriation compensation, uses the economic models of discrimination and government fiscal illusion to explain the problems and influences of the current system of land acquisition compensation, use static Nash equilibrium and subgame perfect Nash equilibrium to model the optimal scheme of land acquisition compensation, uses welfare economics to analyze the land development rights for promoting the fair and efficient, uses a classic urban bid rent model in urban economics to analyze the application of land development rights in our country.The main innovations of this paper include:(1) This paper presents a comprehensive reform program of land expropriation compensation in China, including the liberating of collective construction land market, the ex-post market value compensation for collective construction land which is taken, the transaction of land development rights introduced to China, the agricultural value added land development rights value compensation to agricultural land which is taken, the constraints and compensation if private persons have the eminent domain, and the feasibility of the comprehensive reform program in China. (2) Based on several assumptions that the local government will use the eminent domain to maximize the social welfare, to maximize the individual income and to maximize the fiscal revenue, the optimal standards of compensation for land taken were constructed under the open market conditions. Then, based on the analysis of the status quo of China’s land ownership and government behavior, the article suggests that China should establish an integrated land market. The formation of land market prices can be used to compensate the land expropriated by local government for public interest. (3) Using the experience of other countries for reference, the approach of TDR program should be introduced into China. The feasible path is set for the system of land development rights in China, so that compensation for land development rights should be paid for the persons whose land has been taken for public interest by local government. (4) The article analyzes the circumstance of land fragmentation. The necessity of authorizing the eminent domain to private persons is proved for the existence of monopoly and free-riding problem due to the concentration of land under the current conditions of rural land fragmentation. But there are some strict premises should be met for authorizing the eminent domain to private persons that the land should be used for public interest and the compensation should be the fair market price. In addition, free transaction should have been used in advance referring to the British system of compulsory acquisition of land.