Dose Land Negotiation Policy Promote or Suppress Hidden Debts of Local Governments?

Yinglan Zhao, Jingwen Xu, Chen Feng and Chi Gong ()
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Yinglan Zhao: School of Economics, Sichuan University, Chengdu 610000, China
Jingwen Xu: School of Economics, Sichuan University, Chengdu 610000, China
Chen Feng: School of Economics, Sichuan University, Chengdu 610000, China
Chi Gong: Business School, Northeast Normal University, Changchun 130000, China

Land, 2023, vol. 12, issue 5, 1-23

Abstract: Using panel data from 275 prefecture-level cities in China spanning from 2003 to 2019, this paper employs the multiperiod difference-in-differences method to empirically analyze the policy effect of land negotiation policy on local governments’ hidden debt. The paper also investigates the influence mechanisms of land finance, budget soft constraints, fiscal decentralization and government competition. The empirical results reveal that: (1) Land negotiations promote the expansion of local governments’ hidden debt, which is counterproductive to the sustainable development of government finances. (2) The impact of land negotiation policy on local government’s hidden debt is transmitted via its effects on land finance. (3) The greater the degree of soft budget constraint and the degree of government competition, the less the expansion effect of land negotiations on the hidden debt of the government. The greater the degree of fiscal decentralization, the greater the expansion effect of land negotiations on the government’s hidden debt. (4) Land negotiation promotes the expansion of hidden debt in eastern China and inhibits it in central China, with no significant effect observed in western China. (5) Cities with larger urban scale and higher economic development levels experience stronger effects from land negotiation policies. Therefore, it is imperative to deepen the land negotiation system further, develop policy indicators and feedback mechanisms tailored to local conditions, and introduce a multiparty supervision system to enhance implementation of the land negotiation system.

Keywords: land negotiation policy; local government hidden debt; multiperiod difference-in-differences model (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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