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Empirical study of the local government deficit, land finance and real estate markets in China

Author

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  • Pan, Jiun-Nan
  • Huang, Jr-Tsung
  • Chiang, Tsun-Feng

Abstract

The purpose of this study is to explore an important issue concerning the relationship among the local government deficit, land finance and real estate markets in China. This study uses a panel data of 30 provinces in China during 1999–2010 to estimate the panel smooth transition regression model. Since the estimated transition threshold value is 14.62, provinces with the ratio of fiscal deficits to GDP of greater than 14.62% are categorized as in the high fiscal difficulty (HFD) regime. Otherwise they are in the low fiscal difficulty (LFD) regime. The primary finding of this study is that the land leasing fee has a significantly positive influence on the total value of commodity buildings sold in the LFD regime. In addition, the local fiscal deficit has a significantly positive impact on the real estate market in the LFD regime, but this impact turns to be negative in the HFD regime.

Suggested Citation

  • Pan, Jiun-Nan & Huang, Jr-Tsung & Chiang, Tsun-Feng, 2015. "Empirical study of the local government deficit, land finance and real estate markets in China," China Economic Review, Elsevier, vol. 32(C), pages 57-67.
    • Handle: RePEc:eee:chieco:v:32:y:2015:i:c:p:57-67
    DOI: 10.1016/j.chieco.2014.11.003
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    More about this item

    Keywords

    Local government deficit; Land finance; Real estate; China; Panel smooth transition regression model;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • 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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