House Price,Land Finance And The Risk Of Local Government Debt

The tax distribution reform in 1994 made the local governments' fiscal power and administrative power not unified,that is,the fiscal power was small while the administrative power was large.In order to ease the fiscal revenue and expenditure gap of local governments,the central government no longer participates in the distribution of land transfer rights and interests after the introduction of the "Urban Real Estate Management Law of the People's Republic of China" in 1994,and land transfer fees are all incorporated into local government revenue.At the same time,the reform of the tax distribution system put the paid use income of urban land,the land value added tax and the property tax all under the ownership of local governments.These initiatives have led to a direct link between local government revenues and the land development,real estate and construction markets.Since the financial crisis in 2008,the accumulated local government debts in the form of local financing platforms and other means have expanded rapidly,and the risks between local government debts and the real estate market and the land market have gradually been exposed.First,the source of repayment is unstable.Land transfer fees are the main source of local government debt repayment.However,land transfer fees are closely related to the real estate market and are easily affected by the regulatory policies,resulting in unstable land transfer income of local governments.Second,it depends too much on the rising of house prices.When land sale prices are high,local governments can continue to repay capital and interest by borrowing new capital to repay old debts.Therefore,in the positive feedback process of "house price-land price--collateral price",price rise is the core factor,and systematic risk is gradually amplified,but there is no mechanism to correct deviation.Once the housing price is depressed,the risk will be transmitted quickly in this chain,the land transfer fee of local government will be greatly affected,and it is likely to be difficult to repay the capital and interest,and local government will face great debt risk.Therefore,how to resolve the risk of local government debt scientifically and effectively has become an important part of China's economic development.The main purpose of this paper is to explore the impact of housing price and land finance on the local government bond risk,so as to provide appropriate policy recommendations for local governments.Firstly,this paper constructs a dynamic general equilibrium model including housing price,land finance and local government bond risk.After introducing the housing demand shock,it is observed that there is a significant inverse relationship between the housing price and the local government bond risk,and there is a clear positive relationship between the land finance and the local government bond risk.In order to verify the results of this theoretical model,we empirically analyze the relationship between housing price,land finance and urban investment debt risk in 100 cities of China from 2013 to 2017 through the spatial panel simultaneous model.Then,under the conditions of low income samples of land finance,medium income samples of land finance and higher income samples of land finance,we reconsider the relationship between housing price,land finance and urban investment debt risk.Finally,the spatial panel simultaneous model is standardized to measure the direct,indirect and spatial effects of housing price and land finance on urban investment debt risk through various transmission channels under different sample conditions.The main conclusions obtained in this paper are as follows.(1)The higher the house price,the less the risk of urban investment bonds;The higher the local government's dependence on land finance,the greater the risk of urban investment bonds;The higher the credit rating of the main body of urban investment bonds,the lower the risk of urban investment bonds;The higher the level of regional economic development,the higher the risk of urban investment debt.(2)Rising house price will give local governments more incentive to increase their fiscal dependence on land,which will in turn boost house price.At the same time,the fluctuation of regional house price is correlated with the change of land finance dependence,that is,the rise of regional house price will promote the rise of house price in neighboring regions,and the change of regional land finance dependence will cause the change of land finance dependence in neighboring regions.(3)When regional land fiscal revenue is low,the increase of house price and land fiscal dependence will reduce regional urban investment debt risk.With the local government auctioning a large amount of land,the regional land fiscal revenue increases,and the increase of house price and land fiscal dependence will increase the regional urban investment debt risk.