| The economic effects of national debt, the optimal size of national debt and optimal term structure of national debt has long been the hot spots of economic and financial research, which are the three basic propositions of national debt theory and practice. On a basis of three basic bond propositions, this paper follows the research paradigm of "theoretical research---- the reality analysis--- the empirical analysis". In the first place, this paper reviews the classic literature at home and abroad and extracts the classic theory and conclusion of national debt study. Secondly, the reality analysis is applied to the conclusion of the classical theory. We draw a conclusion that the uncertainty of realistic economic environment holds sway over the national debt research. Combined with the reality of our country, this paper proposes the fundamental point of view concerning the basic national debt theory, including the new directions of theoretical research and the new research perspective of proposition. Finally, taking advantage of the actual data, this paper brings about an empirical analysis and testing on the basic propositions of national debt theory.The full text is divided into six chapters and the specific structure and content are as follows:Chapterâ… is the Introduction, which includes the research on background and significance of the topic, and the definition of the basic concept of national debt. It also outlines the research concept, methods, structure, contents and main innovations of the paper.Chapterâ…¡is literature review from the angles of the economic effects of national debt, national debt scale and term structure of national debt. In terms of the economic effects, literature review consists of the classical economists, Keynesian and the Ricardian Equivalence Theorem, which places the focus on the theoretical and empirical research of Ricardian equivalence theorem and consumer behavior. Turning to the national debt scale, the study covers the welfare maximization, tax smoothing and sustainability as well as the association of national debt scale, treasury risks and financial crisis. In the matter of the term structure of national debt, the study concentrates on time consistency of policy, tax rate smoothing under uncertainty as well as the association of term structure of national debt, interest rates and term structure of interest rates, in order to explain the expectations theory.Chapterâ…¢provides the theory and empirical research on the economic effects of national debt. This chapter carries out systematic theoretical analysis and empirical testing on two bond theory: Keynesian bonds economic effects and Ricardian Equivalence Theorem. First of all, this chapter outlines the refined statement of classic models, including the overlapping generations'model by Diamond (1965), altruism inter-generational transfer payments model by Barro (1974) and the application of the Ricardian Equivalence Theorem by Leonardo (1988)Secondly, combined with the prevailing realities, this chapter conducts in-depth theoretical analysis on the four key assumptions of Ricardian Equivalence Theorem, such as liquidity constraints, inter-generational transfer payments, tax distortions and uncertainties. In addition, this paper introduces several important models of Ricardian Equivalence Theorem, inclusive of the single-equation linear models, simultaneous equations model and co-integration equation model. Finally, we explore the practice of the national debt since domestic national debt were issued in China in 1981. We analyze the absolute and relative economic effects of national debt in three stages through the Ricardian Equivalence Theorem.Empirical research on economic effects of national debt under uncertainty is performed in Chapterâ…£. This chapter examines the economic effects of national debt from the respect of individual consumer behavior. First, we outline the concise summary of classical models of economic effects of public debt, including limited sector model by Blanchard (1985), income uncertainty model by Strawczynski (1995) and income uncertainty expansion model by Carroll (2001). Secondly, we investigate the difficulties of analysis on economic effect of national debt and put forward the research concepts and specific empirical research methods of economic effects from the perspective of financial expenditure uncertainty'impact on individual consumer.Finally, draw on time-varying parameter model and the actual monthly data since 1990, the chapter measures two uncertainties of fiscal expenditure growth rate caused by time-varying parameters and random exogenous shocks. It also studies the effect of uncertainty on long-term trend of household consumption growth rate, in order to grasp the overall economic representation of national debt.Chapterâ…¤is theoretical and empirical study of national debt scale. This chapter analyzes the national debt scale and systematic risk.First, we summarize the classical research on the optimal size of national debt, including the study in the context of infinite certainty period by Bierwag, Grove and Khang (1969), Park (1991), minimum tax cost distortions under the neutral economic effects by Barro (1979), by sustainability research Hamilton and Flavin (1986) and general equilibrium model by Henning (1995). Then, from the perspective of national debt scale risk, we select the national debt burden rate as the basic indicator as the measurement of bond risk and bond scale and construct the smooth transfer model. Finally, this chapter provides the basic measurement of China's bond risk and models the dynamic changes of national debt burden rate. The use of bootstrap forecasting method find the national debt risk, trends of national debt scale.Chapterâ…¥is the empirical research on term structure of national debt theory. First of all, we sum up the classic literature about the optimal term structure, including contingent bond research under uncertainty by Lucas and Stokey (1983) and the optimal term structure under the uncertain shock and smoothing objectives by Barro(1995). Secondly, this chapter investigates the realistic factors which affect the term structure of national debt and explains the expectation theory. Finally, on the ground of the China's actual data, threshold error correction model and Shanghai Interbank Offered Rate since 2007, this paper tests the expectancy theory of term structure of interest rates. Through the above research, the main conclusions made in this article are as follows:1. Through the study of classical literature of economic effects of national debt, we find that the difference, in essence, between the two research milestones----Keynesian bond effects and Ricardian Equivalence Theorem is that barocchi came up with the new utility function of the individual and rational expectations assumption is the core of Ricardian Equivalence Theorem. The consumer behavior model under uncertainty presented by Carroll (2001) simulates the convergent optimal consumption and savings behavior of our country. The results reveal that individual has a high marginal propensity to consume, high savings rate and preventive behavior, which does not meet the rational expectations assumption.2. Dividing the national debt into normal revenue deficit financing and tax exchange, we differentiate two independent economic effects of national debt as absolute and relative economic effects respectively. Relative economic effects research equals with Ricardian equivalence theorem. By means of realistic analysis of economic effects under uncertainty, this paper points out that due to the difficulty of normal tax, it is difficult to identify national debt scales. The feasible solution is to view the financial expenditure as a tax and to think of fiscal expenditure uncertainty as the result of national debt. In the wake of the above hypothesis, we conduct the empirical research on overall economic effects of national debt, from the perspective of the impact of financial expenditures uncertainty on individual consumption.3. The three-stage exploration of the absolute and relative economic effects of China's national debt for almost 30 years indicates that in the first period (1981-1998), both economic effects were very significant. In the second period (1998-2004), the relative economic effects weakened and Ricardian Equivalence Theorem came into play. In the third period (2004-2008), the absolute economic effects of national debt also weaken. The characteristics of economic effects of China's national debt in this stage are closely related with our economic environment and raised awareness of deferred tax.4. By choosing the actual monthly data since 1990 and time-varying parameters regime switching model, we apply the decomposition measurement to the uncertainty of financial expenditure from the angles of definitive shocks and random shocks. Besides, this paper also identifies the long-term impact of two components of uncertainty on consumption growth rate. The outcome signifies that China's total national debt has a positive economic effect and the flexible fiscal expenditure policy is beneficial to deal with random exogenous adverse shocks and lower the short-term sensitivity of macroeconomic environment variable in response to the growth rate of financial expenditure.5. Given the close relationship among national debt size, national debt risk and government debt crisis, this paper deems the national debt burden rate as the fundamental benchmarks of measuring national debt scale and national debt risk. Our government should regularly calculate and disclose statistics of balance of our national debt and our national debt burden rate. At the same time, the employment of some risk indicators, such as debt servicing ratio, to the comprehensive risk measurement jumps to the conclusion that the indicators remain stable in the long term and maintain a downward trend in the near future. China's overall debt burden meets the stability requirements and empirical data supports our long-term sustainability of government bonds. The bootstrap prediction of national debt burden rate bears out that national debt burden rate will continue to maintain a slow downward trend in the absence of sudden severe exogenous shocks.6. The empirical analysis on term structure of China's national debt proves that term structure of China's national debt varies from single to rich and issuance scales of different stage vary from to concentrate to disperse, which forms the current reasonable term structure. This process has a bearing on development of China's bond circulation market and market benchmark interest rate should plays an active role in the formation of a complete curve of term structure of interest rates.7. By choosing the Shanghai inter-bank Offered Rate (Shibor) in 2007, we make use of threshold error correction model to test the active weekly interest rates and daily interest rates. The results proves that the relationship and dynamic characteristics of the above two interest rates meet the theoretical assumptions, which further demonstrates that the design of national debt term structure depends on financing cost is a viable option.
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