The Origins of Land Finance: Local Resistance and Top-Down Imposition

Abstract Land sales have been a significant source of revenue for Chinese local governments since the early 2000s. Contrary to popular belief, local governments did not turn to land finance to make up for lost tax revenues after the 1994 tax sharing reform. Rather, both before and after 1994, corrupt land sales were widespread, as officials sold land far below market prices in return for bribes. Even as the fiscal incentives for local governments to adopt land finance increased in the 1990s, state agents continued acting on their own personal interests rather than the institutional interests of local governments. Local governments only began to sell land at higher, market prices when an anti-corruption campaign launched by the central government made doing so a political imperative in the early 2000s. Local governments were much more responsive to political imperatives than to fiscal incentives.