The Fiscal Impact of Municipal Administrative Center Relocation

The relocation of administrative centers is an important policy instrument in China, empowering cities to promote urban economic growth, strengthen public finance, and improve public service provision. However, some critics argue that municipal administrative centers are wasteful vanity projects intended to enhance the reputation of local leaders. Additionally, the costs associated with relocating and constructing new administrative centers partially contribute to local debt crises. These growing controversial views necessitate a study to evaluate the fiscal impact of relocating municipal administrative centers.

Using a quasi-experimental approach that combines panel event study analysis and differencein-difference methods, this study evaluates the fiscal impacts of relocating municipal administrative centers on public finance outcomes for 283 prefecture-level cities from 2006 to 2015. The primary empirical findings reveal that relocating municipal administrative centers leads to an increase in municipal general budgetary revenues, general budgetary expenditures, and new bond issuance for infrastructure, while resulting in a decrease in land sales revenues. Furthermore, the heterogeneous treatment effects of municipal administrative center relocation vary across cities with different moving distances, city ranks, and regions.

This study makes significant contributions to understanding the fiscal consequences of relocating municipal administrative centers and provides evidence-based policy discussions on public sector relocation issues that arise during rapid urbanization and industrialization.