Study On The Relationship Between China’s Local Government Debt And Region Economic Growth

This topic that government debt can promote economic growth has been debated,especially the outbreak of the world debt crisis since the 80’s of last century, the European debt crisis that began in Greece in 2009, Detroit municipal government bankrupt caused by due to the debt problems in 2013 July, and in 2013 October, the closing event caused by raising the debt ceiling America, the problem of government debt and economic growth is pushed in the teeth of the storm. The government debt in China is expanding rapidly in recent years, which has attracted great attention by the central and local governments. The debt risk of local government has become a major problem facing the economic development in our country, so that in the Chinese Communist Party’s eighteen plenary meeting, establishing the reasonable management mechanism of central and local government debt and risk early warning was put forward. In 2013 December, in the meeting of the central economic work conference, controlling and reducing the local government debt risk as an important task of economic work has further pointed out, and preventing and controlling the debt risk as one of the six major tasks of economic work in 2014 in china. In August 31, 2014 in the amendment of budget law, the need to control the risks, the establishment of local government debt risk assessment and early warning mechanism, emergency response mechanism and the responsibility investigation system once again were stressed.On the relationship between the local government debt and economic growth, we think the two are mutually affected. So the basic logic of this paper is that we firstly analyses the local government debt’s influence on regional economic growth, and in turn how economic slowdown influence on local government debt. The theory and numerical simulation prediction show that slow economic growth will enlarge the risk of local government debt. So the next question is how to evaluate and prevent the local government debt risk in china.First of all, we combed and summarized the foreign and domestic related research from two aspects of theory and empirical. The theory research and debate were summarized as government borrowing is conducive to economic growth, government borrowing whether long term or short-term is not conducive to economic growth, government borrowing on the impact of economic growth is uncertainty. Empirical researches mainly were summarized asevaluation and debate on government debt threshold test, research methods etc.The domestic relevant research mainly involves the debt scale of China’s estimation and classification of government debt, and the problem of debt sustainability, the local government financing platform, the expansion reason of the local government debt and the debt risk. We also point out the shortcomings of related research on the relationship between the relevant domestic government debt and economic growth.Secondly, based on the development process and the evolution of local government debt in China, we analyses the mechanism of local government debt in the role of economic growth from two aspects in this paper. One is that local government debt will affect the regional consumption and regional investment in the short term, thereby affecting the regional economy; the two is that local government debt will influence regional capital and regional economic structure in the long term, then affect long-term growth of regional economy. And we also found by extending the analysis to the Barro model, there is a nonlinear relationship between the economic growth rate and debt rate, there is a critical value in theory, and the critical value depends on factors such as the capital marginal output elasticity, the level of interest rates, tax rate and tax for investment expenditure proportion factors.Then, combined with the theoretical analysis on the relationship local government debt and the growth of regional economy above-mentioned, we firstly checked the relationship between local government debt and regional economic growth by the method of descriptive statistics, that there was a positive correlation was found in two, this means that the government debt has a positive effect on promoting the growth of regional economy. And as the debt ratio increases, the speed of regional economic growth is faster, but the rate of growth is convergent characteristics. After using the SYS-GMM estimation method of the econometric test, we found that there was U type relationship between local government debt and regional economic growth, this shows that, in the province of higher rate government debt,there is more obvious promoting effect, but whether there is the relationship in the two remains to be seen in the long-termSubsequent, this paper demonstrated that slow economic growth influence on local government debt. Because of the influence of internal and external factors such as the incensement of aging population, the adjustment of economic structure, weaken technologicalprogress and the change of the foreign trade situation, that China’s economic slowdown will be an inevitable. Through the reasoning analysis of the conditions of government debt of the intertemporal budget constraint, we can draw the conclusion that a slowdown in economic growth will raise the government debt ratio and the probability of government debt default.And through the numerical simulation of the GDP growth rate by the MATLAB software, the results show that if the GDP dropped to 5% in 2020, the Chinese government debt ratio in2020 will exceed 60% of the international warning line.According to the related data of the debt audit report disclosed in 2014 by various provinces and cities, using the factor analysis method we assessed the debt risk from 30 provinces, the results show that the 30 provinces in China fell on the three warning interval between low risk to high risk, such as Guangdong and other five provinces are in the low risk region, Zhejiang and other 19 provinces are in the moderate risk region, only Neimeng and other three provinces are in the high risk area, no regional provinces are in abnormal high risk,so the early warning results show that the debt risk of whole China’s local government is controllable, the result is consistent with which our country audit office announced that the local government the debt risk is controllable.Finally, we put forward some corresponding policy suggestions such as the management of local financing platform and issues existing in the supervision system of local government debt.