Drinking Poison to Quench Thirst: Local Government Land Financial Dependence and Urban Innovation Quality

Shiying Xu, Fuqiang Yang, Qian Yang, Binbin Chang and Kun Wang ()
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Shiying Xu: School of Management, Chengdu University of Information Technology, Chengdu 610103, China
Fuqiang Yang: School of Management, Chengdu University of Information Technology, Chengdu 610103, China
Qian Yang: School of Business, Renmin University of China, Beijing 100871, China
Binbin Chang: Business School, Sichuan University, Chengdu 610064, China
Kun Wang: School of Management, Chengdu University of Information Technology, Chengdu 610103, China

Land, 2024, vol. 13, issue 4, 1-16

Abstract: Many emerging markets rely on land financing, whereby land grants are used to raise funds for the government. In the short term, land financing eases the government’s fiscal deficit and boosts regional economic development. However, the long-term implications of such behaviour have not been adequately discussed. This study focuses on the relationship between local government land finance dependence (LGLFD) and urban innovation quality (UIQ). We find that LGLFD significantly inhibits the improvement of UIQ, and this inhibition occurs through three main channels: changing government spending preferences, reducing financial efficiency, and deteriorating the institutional environment. Our empirical study analyses 3662 samples from 264 Chinese cities from 2003 to 2016, confirming our research hypothesis. Further research finds that there is significant heterogeneity in the effect of LGLFD on UIQ. Based on these conclusions, some policy implications are proposed.

Keywords: land finance dependence; urban innovation quality; government spending preferences; financial efficiency; institutional environment (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2024
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