Budget legalisation and urban land productivity: evidence from China’s New Budget Law

Urban land expansion poses significant governance challenges for sustainable urbanisation, cultivated-land protection, and food-system resilience, as the low productivity of existing urban construction land intensifies competition among agricultural, ecological, and urban development objectives. Local governments play a central role in urban land governance, and fiscal policies and resource-allocation decisions can substantially shape Urban Land Productivity (ULP). As governments worldwide increasingly advance budget legalisation, fiscal activities have become subject to stronger legal constraints, generating both governance-improvement and fiscal-adjustment effects that may jointly influence ULP. However, the causal effects of budget legalisation on ULP remain insufficiently understood. This study examines China’s 2015 New Budget Law, a nationwide fiscal reform that generated heterogeneous policy exposure across cities according to their pre-policy fiscal transparency. Using a difference-in-differences (DID) design and a panel dataset covering 124 Chinese cities from 2010 to 2019, we find that cities with lower pre-policy fiscal transparency experienced a significantly larger post-reform decline in ULP than cities with higher pre-policy transparency. The estimated differential decline amounts to CNY 0.669 billion per square kilometre, equivalent to approximately 11.26% of the sample mean, and remains robust across a series of specification and validity checks. Mechanism analyses suggest that this short-run decline is associated with reduced investment activity and lower government science and technology expenditure. Furthermore, the short-run negative effect is more pronounced in eastern cities and cities with lower levels of marketisation. Beyond establishing the causal relationship between budget legalisation and ULP, this study reveals an important fiscal-institutional trade-off, while legal constraints can enhance public accountability and fiscal discipline, they may temporarily weaken the investment and innovation capacity required to sustain higher levels of ULP.