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Are local governments maximizing land revenue? Evidence from China

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  • Wang, Yuan
  • Hui, Eddie Chi-man
Abstract
This paper examines how political considerations affect local officials' revenue maximization behaviors in the context of urban land conveyance in China. Particularly, we analyze government intervention based on local officials' choice of two land auction types, namely, “English auction” and “two-stage auction”. The latter presumably serves as a tool of government intervention. We aim to address the research question: “Are local governments maximizing land revenue?” The major findings are threefold. First, for cities with higher housing prices, two-stage auctions are adopted more frequently than English auctions. In addition, land parcels in these “hot” cities adopt two-stage auctions more frequently during sensitive political events, suggesting that local officials respond positively to the real estate regulation policy from central government. Second, when city leaders are more incentivized to promote economic performance, they respond less positively to rises in housing prices. Third, such interventionist behavior results in a significantly depressed land price and housing price. Despite its intention of improving public welfare, this interventionism can susceptibly cause problems of misallocation and corruption.

Suggested Citation

  • Wang, Yuan & Hui, Eddie Chi-man, 2017. "Are local governments maximizing land revenue? Evidence from China," China Economic Review, Elsevier, vol. 43(C), pages 196-215.
    • Handle: RePEc:eee:chieco:v:43:y:2017:i:c:p:196-215
    DOI: 10.1016/j.chieco.2017.02.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Land conveyance; Housing price; Career incentives; Local government; Land auction methods;
    All these keywords.

    JEL classification:

    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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