Open Access Journal Article

State intervention in land pricing and endogenous risk aversion

by Yong He a,* orcid
a
CERDI/CNRS, Universite Clermont-Auvergne, Clermont-Ferrand, France
*
Author to whom correspondence should be addressed.
JEA  2023, 37; 2(4), 37; https://doi.org/10.58567/jea02040004
Received: 17 May 2023 / Accepted: 13 June 2023 / Published Online: 20 June 2023
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Abstract

This study explores the cause and effect of endogenous risk aversion in land pricing, where state intervention through taxation remains a general practice. Using a consumption-based asset pricing model incorporating taxation, it is shown that high taxation, due to the indexation effect, supporting land prices and reducing individuals' risk expectations, could lead to an endogenous decrease in risk aversion, which could result in market dysfunction because risk aversion plays a key role in the market mechanism. China, with its wholly state-owned land and the general use of land sales to cover financial deficits, is a typical case for empirical tests. The tests confirm that there, the rise in land prices was driven by the increase in reserve prices set by local governments, a strong means of taxation, and not by the market, indicating the endogenous decrease in risk aversion.

Keywords: Land pricing; stochastic discount factor; land taxation; the Lucas critique; endogenous risk aversion;
Copyright: © 2023 by He. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
He, Y. State intervention in land pricing and endogenous risk aversion. Journal of Economic Analysis, 2023, 2, 37. https://doi.org/10.58567/jea02040004
AMA Style
He Y. State intervention in land pricing and endogenous risk aversion. Journal of Economic Analysis; 2023, 2(4):37. https://doi.org/10.58567/jea02040004
Chicago/Turabian Style
He, Yong 2023. "State intervention in land pricing and endogenous risk aversion" Journal of Economic Analysis 2, no.4:37. https://doi.org/10.58567/jea02040004
APA style
He, Y. (2023). State intervention in land pricing and endogenous risk aversion. Journal of Economic Analysis, 2(4), 37. https://doi.org/10.58567/jea02040004

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