Government policy and land price dynamics: A quantitative assessment of China’s factor market reforms

Abstract

This paper examines the role played by government policy regarding factors of production in shaping the dynamics of a growing economy. Using land as an example of an important productive factor, we develop a quantitative model with endogenous land price policy regimes to incorporate the regime switch observed in China from dual-track land pricing to land price discrimination by use. Our model also captures the following three economic reforms in China: introduction of non-SOEs (state-owned enterprises); reform of SOEs characterized by their retreat from the competitive manufacturing sector and the establishment of state monopolies in factor markets around 2000. We calibrate our model to match key economic indicators for China and quantify the effects of these reforms. Our calibrated model is consistent with several stylized facts for China after 2000 such as widening disparity in land prices by use, rapid growth in housing price, land revenue, and government expenditures on public goods, and the steep decline in labor share for income.