Land finance and urban Sprawl: Evidence from prefecture-level cities in China

Local government dependence on land finance (LDF) is a relevant cause of urban sprawl (URBS) in China. This study analyses the theoretical mechanism of how the financing of land influences URBS from three aspects of land, economy and population. Night-time light data (NTLD) is then used to construct URBS indicators, after which the mechanism and spatial spillover effect of LDF on URBS is empirically tested by using both Chinese urban data and the Dynamic Spatial Durbin model (SDM). The results indicate that: (1) LDF has both a significant positive direct impact and a spatial spillover effect on URBS, indicating that an increase in LDF revenue in a region can significantly promote the URBS in that region. At the same time, the URBS expansion degree of adjacent areas will also be affected by an increase in local land fiscal revenue, with the effect more prominent in the short term than in the long term. This conclusion still holds after a series of robustness tests. (2) From the perspective of land sprawl, economic sprawl and population sprawl, it is found that there are obvious differences in the effect of LDF on the path of URBS. LDF can significantly promote urban land sprawl, especially industrial land sprawl. LDF effectively inhibits urban economic sprawl, in large part, because LDF brings with it both diseconomies of scale and a technology restraint effect to economic sprawl which is stronger than either the scale economy effect or the industrial agglomeration effect. The effect of LDF on population spread is not obvious. The above research conclusions provide significant policy implications for how land finance can effectively support urban construction and optimise local government financial structure and urban spatial layout.