Analysis of the Factors Influencing the Dependence of Local Governments on Land Finance in China

Abstract

With the increasing debt accumulated by local governments, land finance has become an important issue worth paying attention to in the Chinas economy. Based on the political economy literature, this paper selects general public budget expenditure, regional GDP, per Capita GDP, urbanization rate of permanent people, and the development of the secondary industry as independent variables and the dependence on land finance of the local government as dependent variable. Panel data from 22 provincial local governments is collected for empirical research. The empirical results indicate that accelerating urbanization, general public budget expenditure have led to local governments obtaining extra-budgetary land fiscal revenue. The growth of regional GDP and the expansion of the secondary industry will bring revenue to the region, which will help reduce the dependence of local governments on land finance. The political economics research on land finance helps to understand the economic behavior of local governments in China and also contributes to understanding the issue of soft budget constraint.