Tax Streams, Land Rents and Urban Land Allocation

Yugang Tang, Zhihao Su, Yilin Hou and Zhendong Yin

No 10812, CESifo Working Paper Series from CESifo

Abstract: This paper examines the fiscal motives behind municipal governments' decisions to allocate commercial and residential land when two categories of land use are subject to different fiscal revenue alternatives: business-related tax and/or land rent. We use urban parcel-level land transfers during China’s peak period of urbanization, match commercial parcels with residential parcels, and find significant price discounts on commercial parcels relative to adjacent residential parcels. The observed discounts arise from the future tax flows from commercial use, i.e., expected taxes from developed commercial land reduce its transfer price. We conduct a structural estimation to examine the implications on land use structure of future taxes lowering land transfer prices. Results show that while prospective taxes increase commercial land supply, a significant portion of the favorable treatment impact is mitigated by market price responses, suggesting that the land market counters commercial land favoritism when local revenues include both business-related taxes and land value-based charges. The results have implications for the design of urban public revenue systems.

Keywords: fiscal incentives; land transfer; spatial matching; land use (search for similar items in EconPapers)
JEL-codes: O18 P48 R12 R31 R38 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ure
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Related works:
Working Paper: Tax Streams, Land Rents, and Urban Land Allocation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10812

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