How do local governments respond to national urban containment policies? Evidence from China

Abstract

Urban containment policies have emerged as popular policy tools to alleviate urban sprawl worldwide. This study investigates how the strictness of China's incremental construction quotas affects urban expansion and how local governments utilize their limited agency in land supply to respond to policy constraints. Through a set of difference-in-differences models with continuous treatment, we find that an increase in policy strictness leads to a significant decrease in urban expansion, but the sensitivity to policy strictness varies with city size and administrative level. We also find that local governments facing stricter incremental construction quotas expand land supply sources and adjust the use types, and such responses have uncertain impacts on the sustainable development of cities. These findings suggest that the national government needs to carefully balance the diverse consequences of urban containment policies, not only to support the flexible innovation of local land resources control and management, but also to be alert to local unsustainable behaviors due to short-term interests.