The impact of housing prices on government debt: a new vision based on the intermediary effect of land finance in China

Tong Su, Yinghong Huang, Rafidah Othman Hjh and Rui Chen

Applied Economics Letters, 2024, vol. 31, issue 3, 211-215

Abstract: This article presents evidence that land finance has a significant intermediary effect on housing price and local government debt in China. It is found that the mediating effect accounted for 88.06% of the total effect. Due to the mismatch between their discretionary fiscal resources and mandatory expenditures, local governments have a strong incentive to borrow with land-related fiscal revenue as the collateral for repayment, making land finance an intermediate mechanism in which the real estate boom eventually leads to the expansion of local government debt. And this conclusion is steady, and intermediary role of land finance is still significant in different areas and different periods. This provides a new perspective on the risks in China’s local government debt and property markets.

Date: 2024
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DOI: 10.1080/13504851.2022.2130138

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