Urban sprawl and fiscal stress: Evidence from urbanizing China: Fid-Bau Portal

Urban sprawl and fiscal stress: Evidence from urbanizing China

Yan, Yan / Liu, Tao / Wang, Ningcheng / Yao, Shenjun

Abstract Sprawl not only has a direct negative impact on the health of urban society and ecology but may also damage the financial foundation of urban development. Using city-level panel data from 2002 to 2017, this paper takes rapidly urbanizing China as a case study to discuss the impact of urban sprawl on the fiscal stress of local governments and the underlying mechanism. Results show that, on the whole, urban sprawl is significantly and positively associated with fiscal stress of local governments, which is supported by multiple robustness analysis. By distinguishing two modes of sprawl, residential sprawl is found to significantly increase urban fiscal stress, whereas the impact of industrial sprawl is not significant. Further mechanism analysis indicates that the former is mainly due to the fact that residential sprawl driven by real estate development in the suburb cannot generate continuous fiscal revenue, while the latter can achieve a revenue-expenditure balance for the tax base expansion effect of suburban industrial development. Heterogeneity analysis reveals that the land-centered development strategy of promoting population agglomeration and industrial expansion through excessive supply of cheap suburban land often fails to achieve the desired results but instead increases fiscal stress in small and medium-sized cities and less-developed regions.

Highlights • City-level panel data are used to test the fiscal effect of urban sprawl. • Urban sprawl significantly increases the fiscal stress of Chinese cities. • Effects of residential sprawl and industrial sprawl vary for difference in long-term tax generation. • Fiscal risks are higher in small and medium-sized cities and less-developed regions.