The Fiscal Impact of County-to-Urban District Conversion in China

Abstract

Municipal annexation has been one of the most widely adopted instruments for urban growth in the United States. Scholars of public choice and regional studies have long debated the fiscal effect of local government annexation. Few studies, however, examine the fiscal effect of municipal administrative annexations in China, where prefectural cities have extensively annexed county-level governments through forcefully converting rural counties into urban districts in a top-down manner. Employing a difference-in-differences (DID) method coupled with an event study approach, we analyzed a panel data set of 282 prefectural cities from 2007 to 2015 to examine the fiscal impact of annexation in China. The findings show that prefectural cities have significantly increased their land conveyance fees through administrative annexation. Given that land conveyance fees serve as one of the most important own-source revenues at the local level, our findings shed light on the crucial link among the urbanization process, government reorganization, and local land finance in China and, potentially, in other transition countries.

An Introduction to Volume 59, Issue 3: Homelessness and Eviction, Gentrification and Neighborhood Change, and Urban Expansion in Chinese Cities

“…In "The Fiscal Impact of County-to-Urban District Conversion in China," Li, Guo and Zhang ( 2023) analyze county-level governments in China that have chosen to forcefully convert rural counties into urban districts. Utilizing a difference-in-differences (DID) method coupled with an event study approach, Li, Guo and Zhang (2023) argue that this top-down manner of conversion from CTUD leads to a significant increase in their land conveyance fees through administrative annexation. Utilizing a data set of 282 prefectural cities from 2007 to 2015, their findings show that, "cities with a CTUD conversion are associated with higher land financing revenues compared with cities without the conversion, revealing the fiscal rationale behind annexation activities in an administratively driven urbanization process in a transition country" (p. 894).…”

“…Several articles address urban growth in cities throughout China and the economic impacts on the changing urban contexts. In “The Fiscal Impact of County-to-Urban District Conversion in China,” Li, Guo and Zhang (2023) analyze county-level governments in China that have chosen to forcefully convert rural counties into urban districts. Utilizing a difference-in-differences (DID) method coupled with an event study approach, Li, Guo and Zhang (2023) argue that this top-down manner of conversion from CTUD leads to a significant increase in their land conveyance fees through administrative annexation.…”