Fiscal decentralization, political centralization, and land urbanization in China

Abstract

This study investigates the driving forces of land urbanization in China. Drawing upon insights from the institutional perspective, this study argues that fiscal decentralization tightens local budget constraints, stimulating local governments to urbanize land to relieve fiscal distress. Political centralization triggers interregional competition among government officials for better economic performance, inspiring local governments to employ land development to mobilize more capital investment for growth. Based on official land-use change data from 2002 to 2008 for prefectural cities, and the application of spatial econometric models, this study presents empirical evidence to support these theoretical arguments. Results imply that fiscal and political incentives derived from land development drive China’s land urbanization process. This study enriches the urbanization literature by providing an institutional understanding of rapid land urbanization in a transitional economy.

KEYWORDS:

• land urbanization
• fiscal decentralization
• political centralization
• spatial econometric model
• China

Acknowledgments

The authors especially thank the two anonymous reviewers and Richard Shearmur for constructive comments and suggestions. Any remaining errors belong to the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. However, Yang and Wang (2008) find that a low price transfer strategy was commonly practiced in industrial land, and argue that the revenue-seeking perspective cannot fully explain the dynamics driving local governments in the city of Suzhou with regard to leasing land to industries.

Additional information

Funding

This research is partially funded by the Lincoln Institute of Land Policy. The authors would like to acknowledge the funding from the Natural Science Foundation of China [grant number 41425001], [grant number 41271130].