Fiscal cost of urbanization of population and its formation mechanism—experience from major world powers since 1960

LI Meng1,2

(1.Research Center of Finance and National Governance, Shanghai Administration Institute 200233)
(2.Institute of Finance and Banking, Chinese Academy of Social Sciences)

【Abstract】The urbanization of population is different from the urbanization of the land world in the key points and performance. The latter is fruitful, while the former is less effective. This paper does research on the government debt formed in the process of the urbanization of population, and draws two conclusions. ① Urbanization is an important driving force of public debt, and the structure of fiscal expenditure plays the role as a bridge. Specifically, urbanization reversely forces governments to transfer fiscal funds from high-productivity constructive projects to low-productivity social projects. As a result, the acceleration of public sectors’ productivity slows down but the cost problem of public sectors is increasingly prominent, and the gap of fiscal revenue and expenditure is formed and continuously increased. Different social projects have the order of priorities in the allocation of fiscal funds. Those compressive funds for constructive projects are generally used for social insurance and welfare spending, and health expenditure. In the changing process of urban spatial form, when population move from gathering to spreading, public facilities will be repeatedly constructed and operated inefficiently, and it may accelerate the transformation of fiscal structure. ② The fiscal impact of urbanization is different in different stages of urbanization. When the urbanization rate is over 55%, the influence coefficient of urbanization on the government debt will be more significant, due to the changing flow of essential production factors in private sectors. In the early-mid stage, essential factors mainly shift from agriculture that has lower productivity to the manufacturing industry and the service industry that have higher productivity. The structural acceleration of economic growth has partially covered up the problem of the public debt. In the mid-late stage, essential factors shift from the manufacturing industry that has higher productivity to the service industry that has lower productivity. In this way, the structural slowdown in economic growth and the transformation of the structure of fiscal expenditure form a superimposed effect and completely exposes the public debt together.

【Keywords】 urbanization; government debt; structure of fiscal expenditure;


【Funds】 Youth Project of National Social Science Fund (15CJL009)

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(Translated by LV yafei)


    [1]. ① It should be noted that “cheng zhen hua (townization)” is a concept with Chinese characteristics. In the relevant official documents issued by the government, the expression of “cheng zhen hua (townization)” is used more. As this paper mainly focuses on the international experience, the expression of “cheng shi hua (urbanization)” is used unanimously. [^Back]

    [2]. ① Covering the costs of social insurance, urban infrastructure construction, housing, living and intelligence. [^Back]

    [3]. ② Including housing, basic pension insurance, residents of cooperative medical care, social insurance fees, compulsory education fees of children of migrant workers and urban management fees. Including housing, basic pension insurance, residents of cooperative medical care, social insurance fees, compulsory education fees of children of migrant workers and urban management fees. [^Back]

    [4]. ③ In this paper, the citizenization cost of migrant workers is divided into three parts: public cost, individual cost and enterprise cost. [^Back]

    [5]. ④ Some studies believe that the Chinese government is still an economically constructive government,[15] and the government finance has significant constructive characteristics.[16, 17] The main purpose of the government debt financing in Western countries is to bridge the gap of pension systems, make up for public consumption deficit and redistribute the revenue. However, the government debt financing in China is mainly used for infrastructure construction and public welfare projects, forming land reserves, municipal facilities, transportation facilities, indemnificatory housing and other large quantities of high-quality assets, which have the considerable operating revenue as a source of debt payment and the basis is more solid.[18, 19] [^Back]

    [6]. ① It is worth mentioning that Jiao[22] believes the S-shape curve of urbanization originates from the book of Economic Geography edited by the American economic geologist scholar Northam, and named it as Northam Curve. Since then, most of the studies related to the urbanization curve in China will refer to the contribution of Northam, while ignoring the research of the United Nations. [^Back]

    [7]. ① Wherein, the constructive characteristics are reflected in the horizontal comparison between foreign countries and China, which means China’s fiscal funds are used more in economic affairs. Consumer tendencies are reflected in the vertical comparison between the past and the present, which means the current fiscal funds are increasingly used in non-economic affairs. [^Back]


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This Article


CN: 11-3536/F

Vol , No. 10, Pages 40-56

October 2016


Article Outline


  • 1 Introduction
  • 2 Typical facts and propositions to be tested
  • 3 Measurement methods and data
  • 4 Analysis on the empirical results
  • 5 Conclusions and suggestions
  • Footnote