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The business cycle implications of land financing in China

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  • Guo, Shen
  • Liu, Lezheng
  • Zhao, Yan

Abstract

In the past decade, the Chinese government was increasingly relying on revenues from land sales to finance the public spending. This paper examines the impacts of land financing on business cycle fluctuations in China in an estimated DSGE model. The simulation results indicate that the overall effect of land financing is to increase the business cycle fluctuations by 12.6%. However, the impacts of land financing on business cycle fluctuations depend on shocks hitting the economy. The policy implication of this paper is that cutting the direct linkage between the government expenditure and the land sales could mitigate the business cycle fluctuations.

Suggested Citation

  • Guo, Shen & Liu, Lezheng & Zhao, Yan, 2015. "The business cycle implications of land financing in China," Economic Modelling, Elsevier, vol. 46(C), pages 225-237.
    • Handle: RePEc:eee:ecmode:v:46:y:2015:i:c:p:225-237
    DOI: 10.1016/j.econmod.2014.12.033
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    References listed on IDEAS

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    3. Xuewen Li & Weiwen Zhang & Yi Peng, 2016. "Grain Output and Cultivated Land Preservation: Assessment of the Rewarded Land Conversion Quotas Trading Policy in China’s Zhejiang Province," Sustainability, MDPI, vol. 8(8), pages 1-15, August.
    4. Jing Qian & Yunfei Peng & Cheng Luo & Chao Wu & Qingyun Du, 2015. "Urban Land Expansion and Sustainable Land Use Policy in Shenzhen: A Case Study of China’s Rapid Urbanization," Sustainability, MDPI, vol. 8(1), pages 1-16, December.
    5. Guo, Shen & Jiang, Zheng & Shi, Huimin, 2018. "The business cycle implications of bank discrimination in China," Economic Modelling, Elsevier, vol. 73(C), pages 264-278.
    6. Wang, Qiuyi & Wu, Jing & Wu, Shuping, 2025. "Export slowdown and increasing land supply: Local government’s responses to export shocks in China," Journal of Urban Economics, Elsevier, vol. 149(C).
    7. Jiao Huang & Ze Liang & Shuyao Wu & Shuangcheng Li, 2019. "Grain Self-Sufficiency Capacity in China’s Metropolitan Areas under Rapid Urbanization: Trends and Regional Differences from 1990 to 2015," Sustainability, MDPI, vol. 11(9), pages 1-23, April.
    8. Xu, Feng & Wang, Huan & Chi, Guangqing, 2025. "Does market-oriented land conveyance affect regional economic resilience? A spatial and mediation analysis based on 287 Chinese cities," Land Use Policy, Elsevier, vol. 150(C).
    9. Xinhua Zhu & Yigang Wei & Yani Lai & Yan Li & Sujuan Zhong & Chun Dai, 2019. "Empirical Analysis of the Driving Factors of China’s ‘Land Finance’ Mechanism Using Soft Budget Constraint Theory and the PLS-SEM Model," Sustainability, MDPI, vol. 11(3), pages 1-21, January.
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    12. Gyourko, Joseph & Shen, Yang & Wu, Jing & Zhang, Rongjie, 2022. "Land finance in China: Analysis and review," China Economic Review, Elsevier, vol. 76(C).
    13. Wang, Weifang & van Noorloos, Femke & Spit, Tejo, 2020. "Stakeholder power relations in Land Value Capture: comparing public (China) and private (U.S.) dominant regimes," Land Use Policy, Elsevier, vol. 91(C).
    14. Yubo Wang & Xizhu Yang, 2022. "Fiscal Ecological Cost of Land in China: Estimation and Regional Differences," Land, MDPI, vol. 11(8), pages 1-25, August.
    15. Ma, Yong & Lv, Lin, 2022. "Money, debt, and the effects of fiscal stimulus," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 152-178.
    16. Liu, Chunping & Ou, Zhirong, 2024. "Has fiscal expansion inflated house prices in China? Evidence from an estimated DSGE model," International Review of Economics & Finance, Elsevier, vol. 96(PA).
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    19. Ping Zhang & Xiaojuan Yang & Hua Chen & Sidong Zhao, 2023. "Matching Relationship between Urban Service Industry Land Expansion and Economy Growth in China," Land, MDPI, vol. 12(6), pages 1-29, May.

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