Blessing or curse? Impact of land finance on rural public infrastructure development

Abstract

While land revenue has played an important role in China’s fiscal revenue and expenditure, little is known of the linkage between land revenue and rural infrastructure inputs and its impact on the landscape of fiscal spending on rural infrastructure. To investigate this further, we study the effect of land finance on rural infrastructure inputs by a regression analysis of a panel data set collected for 30 provincial-level regions over a ten-year period. The results show that the effect is jointly determined by the amount of land revenue and degree of reliance on land finance. Increases in land revenue contributed to an increase in rural infrastructure inputs while an increase in reliance on land finance decreased rural infrastructure input. Whether this is a blessing or a curse depends on how dependent the region is on land revenue and the region’s long-term development strategy. Although land finance has mixed effects on rural infrastructure input, it does not influence the “market town-biased” allocation of fiscal spending on rural infrastructure. Land finance can be used to support rural infrastructure development. The challenge for land financed rural public infrastructure development is how to augment land revenue and avoid a heavy dependence on land finance in the long run.