Macroeconomic Effects Of The National Debt Empirical Research

Based on former related studies and newest econometric methods, the dissertation studies the macro economic effects of the national debt in China. There are totally nine chapters: the first chapter is an introduction; the second looks back on the theory evolvement of national debt's macro economic effects and has a literature review; the third studies national debt's economic effects on fiscal expenditure and tax augment; the fourth studies the effect of national debt's civilian expenditure; the fifth studies national debt's employment effect; the sixth studies national debt's multiplier effect; the seventh studies national debt's tax smoothing effect; the eighth studies national debt's financial effect; and the ninth are conclutions and policy suggestions.The introduction makes clear the background, intention, theory and practice meaning of this study. It also gives the conception of national debt, explains the study contents and methods and points out the innovations and defects of the dissertation.The second chapter looks back on the theory and practice evolvement of national debt's macro economic effects and draws out a basic conclusion, i.e. it is hard to evaluate national debt's macro economic effects in itself, but it is feasible to have the evaluation on special regions under special temporal and spatial backgrounds. National debt, in some sense, has two sides, and if properly used, it will produce positive effects, otherwise, it will produce negative effects. The chapter also has a review on related literatures, which constitutes the base for our study.The third chapter deals with the effect of national debt on fiscal expenditure and tax rise , which is a weakness of relative studies in China. Among them, study of the effect of national debt on fiscal expenditure expanding, tax raising and government consumption is scarce. One conclusion is that whether or not repayment of national debt's principal and interest is included, fiscal expenditure is expanded for national debt, which implies that the facilities national debt provides for government satifies government's bias for expenditure expanding, which might lead to the waste of fiscal funds. At the same time, fiscal expenditure is found to be the important cause of taxtation, which implies that national debt has the effect of tax augment. This can to some extent explain the fact that both national debt and tax had been persistently increasing during the time when active fiscal policy was enforced. Another finding is that national debt has promoted government consumption, which denies the mainstream view that national debt fund has been mainly used for public investment, and national debt, according to our study, is an important source for government consumption. When national debt's public investment effect is studied, it is found that there is not a commonly accepted measurement of public investment, hence, based on literature study, four measurements of public investment are introduced, which is an innovation of the dissertation. Subsequently, the relationships between national debt and each kind of public investment are studied. Our conclusion is that national debt has only promoted the public investment that is measured according to investment industries. And the further study indicates that this kind of public investment has no contribution to economic growth. Then the conclusion is that national debt has not promoted ecnonmic growth by way of public investment. The reason, it is thought, is that the public investment devided by industy is not "pure public investment", and many industries traditionally regarded as "public investment industries" have found civilian investment, which indicates that, civilian investment, in these industries, can be of more effency than that of government investment. Moreover, by study national debt's budget fixed asset elasticity, a negative relationship between national debt and budget fixed asset elasticity is found. From these conclusions, it is suggested that national debt's public investment policy should be adjusted.In chapter 4, national debt's civilian expenditure effect is studied, civilian investment and civilian consumption included. When national debt's civilianinvestment effect is studied, both traditional way- studying the relationshipbetween public investment(devided by investment industries) and civilianinvestment, and a new way- studying the relationship between national debt andcivilian investment directly, are used. The conclusion is consistent, i.e. , national debt has crowded out civilian investment. Dialecticly speaking, the crowding out effect is not always a bad thing. But what has happened in China, it is thought, is due to the inferiority of public investment and kinds of constraints on civilian investment and, therefore, must be got rid of. When it comes to national debt's civilian consumption effect, not only the relationship between national debt and total civilian consumption, including urban and rural consumption, but also the relationships between national debt and urban consumption, national debt and rural consumption are studied respectively. The findings are as follows: over the period 1981 to 2005, only urban consumption and basic deficit debt have some interactional relationship. The impulsive responding function indicates that the shock basic deficit debt brings to urban comsumption is negative, which implies that the saving characteristics of national debt has postponed urban consumption. But when the relationships are studied over the periods 1981 to 1993 and 1994 to 2005, an important distinction is found: over the year 1981 to 1993, urban consumption is an important factor that influences national debt issue; whereas over the year 1994 to 2005, urban consumption is substituted by rural consumption. That is, urban or rural consumption is one reason that leads to debt issue, but national debt does not have influence on urban or ruralconsumption. So, according to our study, national debt in China hasn't promoted, and to some extent has restrained civilian consumption. Through analyzing the evolvement path of civilian consumption, it is concluded that the low income level is the most important reason that civilian consumption is hard to stimulate.The fifth chapter is about effect of national debt on employment. By a one phase auto regressive model of employment number, it is found that the active fiscal policy since 1997, national debt at the core, has significiantly changed the path of employment and has promoted employment distinctly. Since China will face severe employment pressure for a long time from now on, national debt policy should be adjusted according to factors such as industry employment elasticity, etc., so as to promote employment more effectively.In chapter six national debt's multiplier effect is studied. Fiscal policy multiplier is induced through IS-LM model, and the fiscal policy multiplier in China is estimated by three stage ordinary least square(3-stage OLS). The conclusion is that the multiplier in China has fluctuated between 1.46 and 1.61. According to that, the economic growth effects of fiscal expenditure increment and national debt increment are estimated. It is found, according to our estimation, that national debt has promoted economic growth during the active fiscal policy period, but the extent is not as much as commonly considered.The seventh chapter deals with the effect of national debt on tax-smoothing. It is testified that macro tax rate should be a random walk series if tax-smoothing hypothesis holds true. But the corresponding empirical study on China denied the tax-smoothing theorem. This is a proof that national debt hasn't worked in smoothing tax rate, and national debt and taxtation policy should be adjusted.The eighth chapter deals with effect of national debt on finance effect, money supply, interest rate effect and inflation effect included. When national debt's money supply effect is studied, studies are made on not only the relationships between national debt and M0, M1 and M2, but also the relationships between national debt and components of money supply. The conclusion is that debt balance doesn't have influence on all levels of money supply, and the amount of debt issue does not have influence on narrow sense money supply and current deposit, but has expanded cash in circulation, broad sence money supply, current deposit & semimoney, and semimoney. When national debt's effect on interest rate is studied, national debt's influence on interest rate is analyzed on the condition that money supply holds constant and is expanded respectively. The empirical study proves that national debt does not have distinct influence on real interest rate in China. When national debt's effect inflation is analyzed theoretically, both traditional angle and a new model are employed, and the latter illuminates that when facing heavy debt balance, the government might make inflation on purpose so as to increase fiscal income from seigniorage and alleviate repaying pressure. The empirical study shows that during the year between 1982 and 2005, there is no causality between national debt and price level, but when the relationships is studied between the year 1982 and 1993, and between the year 1994 to 2005 respectively, it is found that between the year 1994 to 2005, national debt has distinctly caused inflation.The ninth chapter summarizes the conclusions of the dissertation and puts forward some suggestions on subsequent operation of national debt policy.