China'S Housing Bubble, Infrastructure Investment, And Economic Growth

China's housing prices have been growing rapidly over the past few decades, despite low growth in rents. We study the impact of housing bubbles on China's economy, based on the understanding that local governments use land‐sale revenue to fuel infrastructure investment. We calibrate our model to the Chinese data over the period 2003–13 and find that our calibrated model can match the declining capital return and GDP growth, the average housing price growth, and the rising infrastructure to GDP ratio in the data. We conduct two counterfactual experiments to estimate the impact of a bubble collapse and a property tax.