Rent Tax Substitution And The Fiscal Incentives For Land Use

The experience of many countries shows that the tax capacity of land will encourage local governments to regulate land development,resulting in structural distortion of land use.Under the background of China’s state-owned land system,local governments are facing not only tax incentives,but also land rent incentives.In the context of dual incentives,the existing tax incentives are likely to be offset by the reverse land rent incentives,so as to ensure that the land transfer structure is incentive neutral.Based on this,using the micro data of land transfer in 100 cities in China from 2007 to 2019,through the spatial proximity matching between commercial land and residential land,this paper finds that there is a continuous transfer price difference between the two types of land.In addition,using the inter city variation and intra city tax interval variation of the tax generating capacity of commercial land relative to residential land,this paper finds that the tax generating capacity of land is an important factor causing the price difference of commercial and residential land,that is,there is a "tax substitution" relationship.The mechanism test shows that the process of "tax substitution" occurs not only in the initial quotation of the government for land transfer,but also in the bidding process of developers.The substitution relationship between land tax capacity and land rent is of great significance to understand the local land use incentive under the background of land state ownership:the higher tax incentive in commercial land development may cause the distortion of land transfer structure,but this distortion will be offset in whole or in part by the reverse incentive from the land transfer fee income of local government.Further,this paper takes the Intergovernmental sharing reform of land transfer fee income in 2010 and the adjustment of the Intergovernmental share proportion of value-added tax after the "replacing business tax with value-added tax" in the service industry in 2016 as exogenous shocks,studies the impact of the change of financial incentives on the local land transfer structure by using the event analysis method,and finds that after the Intergovernmental sharing reform of land transfer fee income(i.e.after the "land rent incentive" decreases),the number of residential land transfer decreases relatively;After the "replacing business tax with value-added tax" in the service industry,after the Intergovernmental share proportion of value-added tax is adjusted(that is,after the "tax incentive" decreases),the number of commercial land sold decreases relatively.In addition,using the regional variation of the sharing proportion of inter regional land transfer fee income intergovernmental sharing reform,it can also be found that when the local government faces a higher sharing proportion of land transfer fee,the decline of the number of residential land transfer is higher.The above evidence shows that due to the small price elasticity of land demand,when the incentive changes,the land transfer structure of local governments will still change.The findings of this study can help us better understand the possible role of land public ownership in alleviating the distortion of land structure,and echo Henry George’s theorem to a certain extent.