Incentives For Local Governments Research Articles

How does land subsidy policy affect economic performance? Theory and evidence from China

ABSTRACT The causes and consequences of governments’ land subsidy policy aiming for promoting industry development have been little studied. We measure the degree of industrial land subsidy from the spatial perspective by the price ratio of neighbouring commercial and residential land to the industrial land which firm purchased from local governments. By merging data of Chinese listed firms with land transaction data over 2007–2017, we find that industrial land subsidy is related to political connection and governments’ selective industry policy. We also find that industrial firms received land subsidies have lower productivity and profitability. Our results indicate the inefficiency of industrial land subsidy policy. We interpret these findings as evidence of the resource curse of subsidies, where the industrial land subsidy policy benefits firms at the expense of efficiency. Policy of reshaping the incentives of local governments is recommended to correct the distortion of land subsidy policy.

The impact of digital inclusive financial development on local government expenditure: Evidence from China.

This paper investigates the impact of digital inclusive financial development on local government expenditure incentives at the income level. It does so by constructing a multi-level government Dynamic Stochastic General Equilibrium (DSGE) model that incorporates the financial sector. By employing empirical methods that involve uncertainty shocks and counterfactual simulations, the research yields several key findings. Firstly, the development of digital inclusive finance contributes to breaking down the urban-rural dual financial structure, thus facilitating balanced economic development within regions. Secondly, it reduces the proportion of financially excluded areas, accelerates fiscal decentralization, leading to an increase in local government fiscal revenue, and, consequently, an expansion of local fiscal expenditures. Thirdly, at a certain stage of digital inclusive finance development, it tends to crowd out residents' investment and consumption. Therefore, the decentralization of fiscal power and the expansion of local government expenditure at this stage may paradoxically inhibit regional economic growth. The study's conclusions validate the significant impact of digital inclusive finance on local government incentives at the income level.

Countercyclical central government transfers incentivize local government overborrowing: Theory and evidence

Local governments in China have strong incentives to overborrow, leading to unsustainable local debt. Recent research suggests that higher central government transfers serve as a key incentive for local governments to overborrow. This paper constructs a theoretical model and shows that it is the countercyclicality of central government transfers, that is, the negative correlation between transfers and local revenues, that act as the main incentive for local governments to overborrow. We test the model predictions using hand-collected provincial data on local government debt and budgets. The empirical evidence strongly supports the prediction that the negative correlation—not the magnitude—of central government transfers is the main driver of the incentive for local governments to borrow excessively. The countercyclical nature of central government transfers provides insurance against local government debt service, thereby increasing the incentive for local governments to borrow. The findings suggest the need to change the central government transfer policy framework.

Co-benefits as a rationale and co-benefits as a factor for urban climate action: linking air quality and emission reductions in Moscow, Paris, and Montreal

If local governments reduce greenhouse gas emissions, they will not see effects unless a very large number of other actors do the same. However, reducing greenhouse gas emissions can have multiple local “co-benefits” (improved air quality, energy savings, even energy security), creating incentives for local governments to reduce emissions—if just for the local side-effects of doing so. Available empirical research yet shows a large gap between co-benefits as a rationale and an explanatory factor for climate mitigation by local governments: co-benefits are seemingly very large, but do not seem to drive local mitigation efforts. Relying on policy documents, available research, and other written sources, the present paper consists of a multiple case study addressing the link between co-benefits and climate mitigation in Moscow, Paris, and Montreal. Air quality plays a very different role in each case, ranging from a key driver of mitigation to a liability for local climate action. This heterogeneity of mechanisms in place emerges as a likely explanation for the lack of a clear empirical link between co-benefits and local mitigation in the literature. We finally discuss implications for urban climate action policy and research.

Passing on the hot potato. Dutch municipalities under financial pressure have incentives to shift the costs of social care for older people to the central government

In view of the impending ageing of the population, countries have been searching for ways to restructure their social care system. Reforms often involve a decentralisation of authority from central to local government. Although such a decentralisation presents the opportunity to be receptive to social demand, it could provide the incentive for local governments that bear the burden of the costs to (partly) transfer their costs back to the central level. In this paper we examine the impact of fiscal distress of municipalities on cost-shifting behaviour to the central long-term care system in the Netherlands. Using data on both the municipal level as well as the level of individual applicants for the period 2016–2019, we find that municipalities with fiscal distress in social care have higher percentages of applications for centrally funded long-term care. However, we also observe that higher percentages of applications and rejections are positively correlated suggesting that the Dutch independent need assessor has the capacity to (partly) discard cost-shifted applications.

Incentives for local government expenditures on people’s livelihood: the role of high-speed rail

Can high-speed rail (HSR) lines create effective incentives for local governments to supply public goods for people's livelihood? This paper builds a time-varying difference-in-differences (TVDID) model and uses 2002–2018 Chinese data. The empirical results show that HSR enhances the fiscal responsiveness of local governments and creates effective incentives for local governments' expenditures on education and medical/health care; however, this “HSR effect” does not significantly influence expenditures on social security or employment. The mechanism analysis shows that HSR has a significant amplification effect on interregional competition, specifically in terms of market access and human capital agglomeration. Notably, the opening of HSR lines forms a new “incentive-constraint” mechanism for local governments to supply public services for people's livelihood from both the supply and demand sides, and the fiscal and administrative capacities of local governments can strengthen the influence of HSR lines on the supply of public goods for people's livelihood.

Analysis of Carbon Emission Reduction Paths for the Production of Prefabricated Building Components Based on Evolutionary Game Theory

Prefabricated buildings are gradually being promoted from pilot demonstration to scale, to combat climate change and improve energy conservation and emission reduction in the building sector. Despite the carbon emission of assembled structures being substantially lower than that of cast-in-place buildings due to the significant reduction in energy demand during the materialization process, there is still a lot of room for improvement. This study looks at the strategy choices made by manufacturers of prefabricated building components in relation to lowering carbon emissions from the standpoint of manufacturing prefabricated building components. By building a dynamic evolutionary game model between two parties, we investigate the evolutionary process of the strategy chosen by prefabricated building component manufacturers and the government, analyzing the evolutionary stability of each side’s strategy choice, and finally using Matlab tools to simulate the effectiveness of the evolutionary stability. The study findings indicate that (1) low-carbon production costs, local government incentives and sanctions, and corporate low-carbon production benefits are the main influencing factors for manufacturers of prefabricated building components to adopt low-carbon production techniques; and that (2) the cost of regulation under low-carbon production methods and the local government performance assessment system are the key elements affecting regulations by the local government. Based on this finding, we suggest corresponding countermeasures in three areas, including investigating new low-carbon technology options for businesses, developing a new carbon emission accounting subsidy mechanism, and improving the regulatory framework of the government, to provide an efficient pathway for the growth of a low-carbon economy.

Fiscal incentive, political incentive, and strategic interaction of illegal land use by local governments

The Chinese-style decentralization that emerged in the 1990 s has brought about a period of economic growth. However, the drawbacks of decentralized reforms have also gradually drawn the attention of scholars. Local governments themselves, who are supposed to be the custodians of local land, have become the subjects of violations. The study analyzes illegal land use by local governments in the macro context of the entire Chinese economic transition. The trade-offs and constraints faced by local governments in committing illegal land use are evaluated, relevant hypotheses proposed, and a time-spatial dynamic panel data model is constructed through theoretical analysis. Finally, the results of the theoretical and empirical analyses are combined to initiate a more in-depth discussion on the underlying mechanisms of illegal land use by local government, thus attempting to further clarify the logic behind local government land violations in the context of economic growth. The main conclusions are as follows: (1) The development impulse of local governments under the Chinese-style decentralized structure, coupled with the imperfect horizontal accountability mechanism and the inherent defects of the land plan management system, has led to local governments’ repeated violation of land law. (2) There are significant strategic features of such illegal land use, which are manifested in path dependence in time and horizontal competition imitation in space. (3) The financial incentives of local governments and the promotion incentives of local officials have varying degrees of impact on the development of local governments.

The low-carbon effect of pursuing the honor of civilization? A quasi-experiment in Chinese cities

Decentralization has always been considered the reason local governments in China lack incentives for green development. Whether conferring honorary titles can motivate the competition mode of local governments to shift to low-carbon sustainable development is a scientific problem worth studying. In this paper, the civilized city policy is taken as a quasi-experiment, and its effect is evaluated using the method of difference-in-differences. The results show that civilized city policy can effectively promote the improvement of green total factor carbon efficiency. The mechanism is that the policy encourages local governments to mobilize multiple actors to participate in green development practices including strengthening local governments’ environmental control, promoting the technological innovation of enterprises, and increasing public participation in environmental affairs. Heterogeneity analysis of local government incentives shows that the civilized city policy is more effective in cities where local officials are less than 54 years old and the city GDP growth rate is midstream in the province. The study confirms that awarding honorary titles to cities in China can effectively guide local governments toward a sustainable development model and provides new ideas for other countries in the world to use local policies to address global climate change.

What drives local communities to engage in climate change mitigation activities? Examining the rural–urban divide

AbstractThe National Climate Initiative (NKI) in Germany provides a strong incentive for local governments to apply for funding to engage in climate protection activities. Yet, the latest evaluation of the NKI confirms that there is a great disparity in the distribution of funding across regions. Taking this regional fragmentation as a starting point, we ask the following: How can we explain disparity in the amount of funding across counties and cities? We draw on climate policy literature pointing to the role of socioeconomic and political determinants and the settlement structure to answer this question. We study all 400 cities and counties to test hypotheses concerning disparity in the likelihood and amount of climate funding, using data from the German Ministry for the Environment and further regional statistics. Running different multilevel regression models, we show that local climate funding is more likely in cities and more urbanized counties than in rural counties with less population and oftentimes also with less young and educated people. We argue that despite the increasing number of local governments getting active in climate protection in Germany, there is important unused potential for climate change mitigation in rural counties. Therefore, we conclude by proposing a new research agenda focusing on climate change mitigation in rural areas.

Promotion vs. pollution: City political status and firm pollution

Some corporate pollution behaviors raise public concern on whether local governments can strictly implement the central environmental policy to restrain heavy-polluting firms within their jurisdiction. To explain this tension, on the basis of political incentives, we discuss the effect of the political status of the city where the local government is located on the corporate pollution behaviors within the jurisdiction and consider that political status is an important factor influencing the local governments' trade-off between economic growth and environmental governance. We believe that the political status is an innate political incentive for local governments, indicating that the higher the political status is, the stronger the political incentive the local governments perceive and the more motivated they are to implement environmental policies strictly, thereby reducing corporate pollution behaviors. In addition, we propose that the promotion opportunities of local officials will further strengthen their perceived political incentives, thus reinforcing the focus relationship, whereas geographical distance between central and local governments will further weaken the implementation of local governments, thereby undermining the focus relationship. Analyses on the Chinese heavy-polluting firms listed on stock exchanges from 2008 to 2020 support these arguments. Thus, our results clarify the mechanism of political status influence on corporate pollution behaviors and contribute to the literature on political incentives.

A Platform for Sustainable Scale: The Challenge Initiative's Innovative Approach to Scaling Proven Interventions.

The global health community continues to face barriers in scaling up evidence-based interventions for widespread adoption. Although many effective interventions have been developed over the years, expanding their reach to benefit broader populations has happened slowly or not at all. The Challenge Initiative (TCI) is a nontraditional development platform that supports local urban governments to rapidly scale up proven family planning (FP) and adolescent and youth sexual and reproductive health (AYSRH) interventions for the urban poor. TCI prioritizes sustainability and local ownership and uses a health systems approach when planning for and managing scale. TCI strengthens urban health systems with seed funding, coaching, and technical assistance (TA), and TCI University houses "how-to" guidance and tools for implementing the interventions. In turn, local governments commit political will and financial and human resources while using TCI coaching to integrate interventions into routine practice and systems to achieve widespread and sustained impact at scale. As of June 2021, TCI has supported 104 local governments across 11 countries in scaling up effective FP and AYSRH interventions, while also mobilizing about US$28 million from those local governments to facilitate their implementation. TCI has increased capacity and bolstered urban health systems, with 39 local governments "graduating" from TCI support and 2.02 million additional FP clients across 4 regional TA hubs. TCI aims to change how local governments coordinate, finance, and implement proven interventions to improve access to quality FP information and services. With built-in incentives for local governments, partners, and donors to participate, TCI is generating significant learning on how local governments can realize sustainable scale and demonstrating how organizations like TCI that facilitate governments to scale up effective interventions can accelerate the scale-up of these interventions across multiple geographies.

Does the construction of an ecological civilization promote firm technology investment? a Quasi-natural experiment

The government of China has launched an environmental campaign called “Ecological Civilization Construction” and successively set up demonstration zones for ecological civilization construction in some regions since 2012. This paper studies how demonstration zones influence technology investment of local enterprises. In order to eliminate potential endogeneity issues and differences in time trends of technology investment in regions and industries outside of policy impacts, so as to accurately identify policy effects of demonstration zones, we adopted the difference-in-difference (DID) and difference-in-difference-in-difference (DDD) model. The results are as follows: first, after the policy, firms in the demonstration zones make more investment in technology, and the necessary condition for this effect is that the firms are in a state of growth. Second, the level of regional economic development has a positive moderating effect on the main results by influencing the impact of policies on local government incentives. Third, the intensity of environmental regulation expressed by air pollution index has a positive moderating effect on the main results. Fourth, firms with strong social responsibility will not be affected by such administrative pressure. Fifth, whether firms with strong financing constraints can increase technology investment depends on government subsidies.

Environmental Regulation, Greenwashing Behaviour, and Green Governance of High-Pollution Enterprises in China.

This study analyses the relationship between greenwashing behaviour, a lack of government supervision, and imperfect green certification mechanisms in China. To improve green governance and greenwashing governance in light of rent-seeking behaviour between high-pollution enterprises and third-party green certification institutions (GCIs), we construct a tripartite game model for the green governance system using an evolutionary game and analyse the interaction and evolutionary trajectory between the three parties. Our results indicate that increasing local government incentives and penalties not only facilitate strengthened green governance by high-pollution enterprises that do not greenwash but also help third-party GCIs to decline to engage in rent-seeking. However, increased incentives lead to relaxed governmental supervision. In addition, the government’s incentives and penalties only meet conditions that each agent’s total incentives and penalties exceed its speculative gain, and green governance systems can be effectively prevented from resulting in unsatisfactory and unstable strategies. Moreover, the accountability that higher levels of government have to local governments effectively enables high-pollution enterprises’ refusal to greenwash and third-party GCIs’ refusal to engage in rent-seeking. Our results counsel further research on environmental regulation, green governance, and enterprises’ greenwashing, with theoretical and practical applications for both policymakers and enterprises.

Implementation of Discretionary Accrual in Local Governments and Motivation of Local Government Incentives: Literature Review

This study is a literature review aimed at exploring the application of discretionary accruals and the motivation of Regional Incentive Funds (DID) received by local governments. Depreciation of fixed assets was chosen as a profit management technique used by local governments because fixed assets are the largest component of the balance sheet and involve the operational activities of local governments. There are not many studies that discuss the application of Discretionary Accrual by linking the incentives received in non-profit organizations, especially in Indonesia. Ferreira, Carvalho and Pinho [1] stated that there have not been many earnings management studies conducted by non-profit organizations so that there are still many research opportunities in this area, moreover there is no research related to earnings management in order to obtain subsidies or grants from the government [2].

Impact of assessment of long-term care insurance management and financial incentives for local governments: The three years’ experience of Japanese-style Managed Care to Promote Integrated Care

The International Journal of Integrated Care (IJIC) is an online, open-access, peer-reviewed scientific journal that publishes original articles in the field of integrated care on a continuous basis.IJIC has an Impact Factor of 5.120 (2020 JCR, received in June 2021)The IJIC 20th Anniversary Issue was published in 2021.

Strategies to optimize the use of organic fertilizers in smallholder coffee plantation

The demand for organic coffee is increasing in line with increasing competition and consumer preferences for healthier products. On the other hand, the application of organic fertilizers in smallholder coffee plantations is still low. The research aims to map the constraints of organic fertilizers usage and develop strategies to accelerate organic fertilizers application in smallholder coffee plantations. Data analysis was performed using the scoring method. The results showed that farmers applied more inorganic fertilizers. Constraints of organic fertilizers application are related to technical, economic, and institutional aspects. Strategies to optimize the use of organic fertilizers in smallholder coffee plantations include providing capital and financial support with subsidized interest rates and strengthening farmer institutions as the priority. Other strategies include introducing an integrated coffee livestock system and providing local government incentives for promoting and organic certification assistance. Institutions involved in implementing the strategy include local governments, research institutes, financial institutions, coffee processing industries, exporters, extension officers, certification bodies, farmers’ groups, cooperatives, and associations. The strategies are essential to overcome the existing problems and constraints in organic coffee farming development and increase farmers’ interest in applying organic fertilizers.

Towards robust and speculation-reduction real estate pricing models based on a data-driven strategy

In many countries, real estate appraisal is based on conventional methods that rely on appraisers’ abilities to collect data, interpret it and model the price of a real estate property. With the increasing use of real estate online platforms and the large amount of information found therein, there exists the possibility of overcoming many drawbacks of conventional pricing models such as subjectivity, cost, unfairness, among others. In this paper we propose a data-driven real estate pricing model based on machine learning methods to estimate prices reducing human bias. We test the model with 178,865 flats listings from Bogotá, collected from 2016 to 2020. Results show that the proposed state-of-the-art model is robust and accurate in estimating real estate prices. This case study serves as an incentive for local governments from developing countries to discuss and build real estate pricing models based on large data sets that increases fairness for all the real estate market stakeholders and reduces price speculation.

Does VAT retention rate affect firms’ capacity utilization? Evidence from China

Value-added tax (VAT) is shared between central and local governments, and is levied based on firms' production location, which provides incentives for local governments to intervene in firms' production. This paper investigates how local governments' VAT retention rate affect firms' capacity utilization theoretically and empirically. We find that the more VAT retained by local governments', the lower the firm's capacity utilization. Our findings suggest the fiscal and taxation system reform should correct local governments' improper incentives and eliminate the negative effects of the distorted intergovernmental fiscal relationships on firms.

Evolutionary Game and Numerical Simulation of Cultivated Land Protection Policies Implementation in China

The effective implementation of cultivated land protection policies (CLPP) has important practical significance for improving China’s food security and ecological security. The central government, local governments, and farmers have mutually restricted and influencing interest relations. At the same time, the codes of behavior of multistakeholders also affect the implementation of CLPP in the social system. Therefore, this article discusses the behavioral tendencies and game relationships of relevant stakeholders in the implementation of CLPP from the perspective of evolutionary games and portrays a cognitive decision-making process closer to reality. Finally, numerical simulation reveals the key variables that affect the stability strategy. Results show the following: (1) As the main body of system supply, the central government should reconstruct the political achievement evaluation system and improve the status of the effective implementation of cultivated protection policies in the political achievement evaluation of local governments. (2) The central government should increase incentives for local governments to implement CLPP and increase penalties for violations to improve the effectiveness of policy implementation. (3) To optimize the actual implementation of CLPP, increasing awareness of farmers’ rights protection, reducing rights protection costs of farmers, and increasing the constraints on the flexible implementation of CLPP are necessary.