Does Local Governments' Budget Deficit Push Up Housing Prices in China?

Guiying Wu (guiying.wu@ntu.edu.sg), Qu Feng and Pei Li
Additional contact information
Pei Li: Institute of Real Estate Studies, National University of Singapore.

No 1409, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: Budget deficit has been a common fiscal pressure facing Chinese cities since the 1994 fiscal reform. Meanwhile, land lease sales have become a signi?cant o¤-budgetary revenue to local governments since 2003. This paper investigates whether ?nancing budget deficit is an important driving force of the recent soaring housing prices when local governments function as the monopoly supplier of urban land. A conceptual framework is developed to illustrate a transmission mechanism from budget deficit to housing prices. This leads to an empirical model consisting of two simultaneous structural equations for housing prices and land prices. Using data for the 35 major Chinese cities from 2003 to 2011, an empirical exercise shows although budget deficit has a positive effect on land prices, it is the factors from demand side, such as amenities, income and the user cost of housing capital, that have been pulling up the housing prices.

Keywords: Housing Prices; Land Prices; Public Finance; Chinese Economy (search for similar items in EconPapers)
JEL-codes: G10 H27 R21 R31 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2014-08
New Economics Papers: this item is included in nep-cna, nep-sea, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Does local governments’ budget deficit push up housing prices in China? (2015)
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