The Impact of Chinese Decentralization on the Deviation of Land Granting Prices

Abstract

Chinese local governments have obtained incremental land by continuous city expansion and infrastructure investment, and have consequently acquired large amounts of land granting revenue. Based on a theoretical analysis framework, this paper explains the impact of Chinese style decentralization on local government behavior. Because the fiscal decentralization weakened the decision and distribution right of local government revenue or expenditure, the pressure of the gap between local government revenue and expenditure has grown. This research provides a new perspective for understanding the deviation of land granting prices and will help develop policy to regulate the behavior of local governments. We conducted an analysis using prefecture-level panel data from 1999 to 2009 for the Yangtze River Delta region. The results showed that Chinese style decentralization has significant incentives on the land finance of local governments. Fiscal decentralization was found to have a positive effect on the increase of industrial, commercial and residential land prices; political centralization was found to have a positive effect on commercial and residential land prices. In conclusion, the land finance tendency of local governments and deviations in land granting price have a close relationship with institutional arrangements of Chinese style decentralization.