The impact of local government bonds on land-leasing behaviours and the economic consequences: evidence from the self-issuance reforms in China

Abstract

ABSTRACT Under the 1995 Budget Law, land finance, rather than local government bonds (LGBs), played a critical role in bridging fiscal gaps for Chinese local governments. This paper examines the impact of the self-issuance (SI) reform of LGBs from 2011 on land leasing using county-level data from 2000 to 2019 combined with land parcel data and business registration databases of China. Findings reveal that, firstly, SI reforms initially reduce land leasing but increase it by 24.86% three years later, with a preference for commercial and residential land. Reforms also raise commercial and residential land leasing prices by 14.22% and do not compel lower prices for industrial land. Secondly, based on repayment obligations, the self-issuance and central-government-repayment (SICGR) mode alleviates fiscal pressure, favouring commercial and residential land leasing, while the self-issuance and self-repayment (SISR) pattern enhances fiscal sustainability and leads to more industrial land leasing. Thirdly, mechanism analysis suggests that SI reforms increase debt burden and decrease fiscal self-sufficiency, primarily through land tender, auction, and listing mechanisms, resulting in unbalanced regional development. This research highlights the need for sustainable development patterns under the New Budget Law of 2015, balancing fiscal revenues, the land market, and local government debts.