Please enjoy the following article from the Journal of Urban Affairs, available online.
The impact of a tax cut reform on land finance revenue: Constrained by the binding target of construction land, by Jian Wang, Mark Skidmore, Qun Wu & Shu Wang
Over the past 2 decades, China’s local governments have tended to increase revenue through a large number of land sales when experiencing fiscal stress, i.e., generation of land finance revenue. However, this revenue source is inherently unsustainable. This paper examines the impacts of a major tax cut reform in China, namely, the Business Tax to Value-Added Tax Reform (B2V), on local governments’ land finance revenue and whether local government reliance on land finance revenue is constrained by planning restrictions. We use data from 232 prefecture-level cities in China and conduct an econometric analysis to examine these impacts. The major findings are as follows. First, B2V has led to a significant increase in local government land finance revenue. Second, local governments did not respond to B2V to increase land finance revenue before B2V implementation. Third, the impact of B2V on land finance revenue is constrained by the binding target of construction land; the constraining effect of the binding target became evident after 2013. Policy implications are discussed based on the research findings.