A Research On Causes, Economic Effects And Transition Of Local Governments’ Land Finance

In the old pattern of economic development, local governments have been getting a lot of revenue, and effectively promoting the development of local economy and the process of urbanization through the land-based fiscal mode. However, land finance created a series of economic and social problems, such as the difficulty of economic structure transformation, the damage of farmers’land rights and so on. Meanwhile, China’s economy and the real estate market have entered into a "new normal", and land finance which is mainly made up of land-transferring fees has become increasingly unsustainable. Consequently, the transformation of land finance is imperative. The paper aims to put forward the transition path of land finance through analyses comprehensively the institutional background, contributing factors and economic effects of land finance, providing references for transition of land finance.Firstly, the paper analyses the concept and compositions of land finance, introducing land transfer fee, real estate direct tax and land mortgage financing. Next, it measures the land finance scales of 31 provincial governments between year of 2003 and 2012, and analyses the whole scale, structure and differences between regions of land finance, discovering that the scale of land finance is huge and increases rapidly, but it fluctuates heavily in some years; land transfer fee accounts for about 60 percent and real estate direct and indirect tax accounts for about 40 percent; in sub-regional perspectives, the proportion of central and west region has been increasing year by year, and the proportion of east region has been decreasing. Then it elaborates land finance institutional background from three respects:the tax-sharing system, the land acquisition and marketization of transfer system, the performance evaluation system. The next step, the paper analyses the contributing factors of land finance:local fiscal stress and political promotion incentives, and empirically tests the contributing factors in use of panel data model.Then the paper analyses the economic effects of land finance:firstly it empirically tests the economic contributions of land finance in use of Cobb-Douglas production function. Secondly, the paper analyses the economic problems caused by land finance:difficulties of economic structure transition, local governments’debt risk and local financial risk, distortions of real estate market and the underdevelopment of population urbanizationThen the paper puts forward the transition path of land finance:from the increment model to the stock model, from depending on land-transferring fees to depending on land taxes, implementing capitalization and securitization of property tax. Finally, the paper puts forward policy suggestions from the perspectives of top-level designation and basic-level exploration. In the top-level designation:Central government should reform the tax-sharing system to build reasonable fiscal relationship between governments; land system should be reformed to establish perfect land and property markets; the performance evaluation system should be reshaped to change the functions of local governments.In the basic-level exploration, local governments can explore property tax reform and cultivate the main sources of revenues; issue long-term offshore CNH bonds guaranteed by the future property tax revenues; probe new financing channels of urban constructions and new operating modes.