Fiscal policy choices of local governments in China: Land finance or local government debt?

Yudan Cheng, Shanghui Jia and Huan Meng

International Review of Economics & Finance, 2022, vol. 80, issue C, 294-308

Abstract: This study examines how fiscal incentives affect policy choices of local governments in China. We construct a difference-in-differences model using the 2014 Chinese central government policy of controlling the increase in construction land in metropolitan cities as an exogenous shock. The results reveal a substitution relationship between land sales revenue and local government debt, wherein local governments tended to expand debt when land revenue was reduced. Moreover, this decline affected local government debt’s maturity structure, as local governments faced higher short-term debt pressure and more quickly adjusted the interest rate maturity structure, which could trigger new debt risks.

Keywords: Land finance; Local government debt; Fiscal policy choice; Local government; China (search for similar items in EconPapers)
JEL-codes: H39 H63 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:294-308

DOI: 10.1016/j.iref.2022.02.070

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