An Empirical Analysis of the Effects of Land-Transfer Revenues on Local Governments’ Spending Preferences in China

This study examines the use and spending effects of land-transfer revenues in Chinese local governments. It tests the effects of such revenues on local revenue and expenditure structures using city-level budgetary data, and also the effects on the performance of public spending on economic and social development to indirectly estimate the actual spending preferences of local governments in terms of their “total” (both on- and off-budget) spending. The author found that land finance is more of an eastern phenomenon; and most cities in China still rely on budgetary revenues and intergovernmental transfers. Land-transfer revenues tend to be used to support local economic development rather than social development.