A research on the debt sustainability of china's major city governments in post-land finance era

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Abstract

Land finance, i.e., a city government's revenue, depends deeply on the revenue from transferring multiannual land use rights and is a phenomenon unique to China. However, due to increasingly tense land supply, increasingly prominent social conflicts, and the slowdown of urbanization in China, the country is entering what wemay label the "post-land finance" era. Therefore, revenue from land finance is decreasing, which threatens the sustainability of Chinese city governments' debt, especially inmajor cities. This paper tests the long-termsustainability ofmajor Chinese city governments' debt. Different from intuition, the empirical results show that the debt of these major city governments is still sustainable at the macro level. This paper also constructs a quadratic function model to predict the critical value of the local government debt. Our results suggest that despite the fact that debt is still sustainable, critical value may be reached quickly, as debt is growing rapidly. There is thus a need for local fiscal reform that divides financial power and authority between the local governments and the central government more reasonable and clearly, improves the current assessment mechanism of local governments' officials, and speeds up the legislative work on property taxes.

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APA

Tu, L., & Padovani, E. (2018). A research on the debt sustainability of china’s major city governments in post-land finance era. Sustainability (Switzerland), 10(5). https://doi.org/10.3390/su10051606

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