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Does Local Governments' Budget Deficit Push Up Housing Prices in China?

Author

Listed:
  • Guiying Laura WU

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological Univer- sity. Address: 14 Nanyang Drive, Singapore, 637332.)

  • Qu FENG

    (Division of Economics, School of Humanities and Social Sciences, Nanyang Technological Univer- sity. Address: 14 Nanyang Drive, Singapore, 637332.)

  • Pei LI

    (Institute of Real Estate Studies, National University of Singapore.)

Abstract

Budget deficit has been a common fiscal pressure facing Chinese cities since the 1994 fiscal reform. Meanwhile, land lease sales have become a signi?cant o¤-budgetary revenue to local governments since 2003. This paper investigates whether ?nancing budget deficit is an important driving force of the recent soaring housing prices when local governments function as the monopoly supplier of urban land. A conceptual framework is developed to illustrate a transmission mechanism from budget deficit to housing prices. This leads to an empirical model consisting of two simultaneous structural equations for housing prices and land prices. Using data for the 35 major Chinese cities from 2003 to 2011, an empirical exercise shows although budget deficit has a positive effect on land prices, it is the factors from demand side, such as amenities, income and the user cost of housing capital, that have been pulling up the housing prices.

Suggested Citation

  • Guiying Laura WU & Qu FENG & Pei LI, 2014. "Does Local Governments' Budget Deficit Push Up Housing Prices in China?," Economic Growth Centre Working Paper Series 1409, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
  • Handle: RePEc:nan:wpaper:1409
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    References listed on IDEAS

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    More about this item

    Keywords

    Housing Prices; Land Prices; Public Finance; Chinese Economy;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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