Panel Granger Test on urban land expansion and fiscal revenue growth in China's prefecture-level cities

Abstract

Land development in China has been a popular research topic in existing studies. It is not only mobilized by municipalities to attract investments and promote local economic growth, but also become the trigger to ignite various land-related conflicts. While quite a few researches have focused on the institutional contexts of "land coffer", the effects of urban land expansion on the growth of local fiscal revenue remain poorly examined. Moreover, less attention has been paid to the "land coffer" in different industries in cities with various characteristics. To help narrow this gap, this paper initiates a preliminary inquiry to the causality between expansion of urban built-up land and growth of local fiscal revenue based on the panel vector error correction model(VECM). Using data from City Statistical Yearbook(1985-2011), this study examines the mechanisms, efficiency and regional differences of fiscalization of land among Chinese municipal governments based on random effect models. The findings indicate that the growth of urban land is the Granger cause of local fiscal revenue since 1995. However, the expansion of urban built-up land caused only a transient increase in local fiscal revenue and had no significant long-term effect on the development of housing or manufacturing industries, which suggests that the urban land development in China mainly contributes to local fiscal revenue through short-term land expropriation, which has been excessively extracted and doomed to be unsustainable. As for the spatial differences among the three regions in China, the promoting effects of land development are more significant within the cities in eastern region or those with a larger population size. Nonetheless, land development generally has negative effects on housing and manufacturing industries for Northeast China, central region and western region in the long run. This implies that the intensifying land expropriation across the country is rather short-sighted. To prevent waste of precious farmland in the ongoing urban sprawl and the upcoming round of "small city-township" development(chengzhenhua), we call for more compact land development and reform of current land system.