The Empirical Evidences on the Link between China's Public Land Leasing and Local Fiscal Revenues

The public land leasing has been increasingly used as the instrument of generating revenues for local governments as well as the tool of regional competition for manufacturing investment. The local government can generate two revenue streams from leasing public land: land conveyance fees and future formal tax revenues. These formal taxes include value-added tax (VAT) from enterprises, business tax from services, and income tax from profits. In order to raise sustainable tax revenues from manufacturing capital in the future, the local government usually sacrifices conveyance fees and reduces the public land leasing price through one-on-one negotiation. Using the provincial-level data, this paper empirically examines the impacts of public land leasing on the lagged revenues from major local taxes. Our dependent variable is either total fiscal revenue or specific tax revenue. The candidate variables of public land leasing include the number of land sites leased, the total area of land sites leased, the leasing revenues, and the leasing price. The empirical analysis provides the evidence that the public land leasing has a clear effect on the future revenues from both VAT and enterprise income tax.