Studies Of The Sustainability Of Government Debt In China

1.Focusing on the critical theme “How to Achieve Reasonable Quantification about The Government Debt Sustainability in China”,we have considered three aspects that can be the basis for research.Firstly,how to understand the essence of sustainability of government debt? Secondly,the main body of the research,or the scope of government debt specifically? Finally,the specific quantitative means that match our understanding about the sustainability of government debt? Corresponding to the first one,we attribute the sustainability of government debt to the government debt burden and the government debt limit,and the space between the two is the quantitative expression about the government debt sustainability.Corresponding to the second one,taking the particularity of China's financial system into account,we also consider the local government debt.And the following parts mainly based on the thought about the third aspect.2.We measure the risk of government debt of China,and if the risk is controllable compared with a static upper limit that means the government debt is sustainable,which can be regarded as the quantification of the primary level of government debt sustainability.In particular,taking into account the impact of macroeconomic uncertainty on the sustainability of government debt,and according to the ergodic distribution of the debt/GDP ratio,we can measure the risk of the central government debt quantitatively and dynamically.Then we make the gap between central government debt/GDP ratio and 60% as a reference standard to give an indirect analysis of the local government debt cirtical risk.In addition,through policy simulation we analysis the impact of economic climates,economic growth and financial market development on the government debt sustainability in China.According to the decision-making method of Sharma(1995),this paper obtains the economic climatesin China through the clustering analysis of four macroeconomic indicators,such as real GDP growth rate,inflation rate,real interest rate and unemployment rate,which are dim,nomality and boom.And through the ergodic distribution of the debt/GDP ratio,we came to a conclusion the cenrtal government is stable.However,it has a debt-spiral tendency when economic is dim,and it seems that the short-term public funds allocation efficiency is low.One key finding is that the risk of local government debt is controllable,but the actual scale is close to the critical point.It is worth noting that the growth of local debt is faster than the real economic growth,there may be risk of local debt risk burst.In addtion,the risk of government debt is determined by the economic climiates fundamentally,and also influenced by the financial market,macroeconomic situation,and the government anticipation.3.We further explore how to quantify our government's debt sustainability,and the key is how to reflect the endogenous or dynamic of government debt limits.Basing on the fiscal reaction mechanism,and combining with the specific features in China at the present stage,this paper constracts the realistic nonlinear financial response function,and according to the government budget constraint to obtain the government debt ratio ceiling,then studies the government debt sustainability by analyzing the feature of the fiscal reaction mechanism,the government debt balance point and the fiscal space.All in all,in this part we aim to bulid a theoretical framework of government debt sustainability in China.Combined the history of government debt in China with the phonomena that the primary deficit first a slight increase and then down with the government debt ratio,we can define that as the initial stage of “financial fatigue”,that is,our country is in the beginning of “financial fatigue” signs,therefore,using the second term function of government debt ratio may fit the reality of China's financial response better.Meanwhile,there is still a certain fiscal space in China at present with macroeconomic regulation and control,in particular,considering the economy is still relatively dim,there is about 10.45~10.65% fiscal space in 2016,however,it is 10.63-10.83% if regardless of the impact of economic growth.What is worth noting is that the fiscal space in China is reducing accelerately,specially there is a significant decline in 2010,and worse to worse the economic downturn in the economic slowdown will further reduce the fiscal space.4.Recognizing that government debt is a comprehensive proposition involving economic and finance,we combine the government debt attributes with the basic theoretical framework organically to expand the analysis of the government's debt sustainability in our country.The paper mainly includes the financial reserve,the household savings and the financial market development the three points to analyze the economic and finance aspects how to influence the government debt sustainability,and specifically analyze the mechanism of the different points influence the government's debt sustainability as the precondition,and mainly focuses on the rational allocation of financial reserve,the net effect of household savings on the sustainability of government debt and the relationship between financial market development and government debt sustainability.When analyze the financial reserves,we consider the different economic effects: on one hand,ease the uncertainty that may bring the expansion of government debt risk,and release the fiscal policy space that can improve the efficiency of capital allocation;on the other hand,also face heavier financial burden,and the risk that low the efficiency with the excessive fundings.The results show that China's financial reserve has not yet reached the optimal stock at presen,and with the increase of the financial reserve ratio,the “vertical effect” that he fiscal reserve improve the fiscal response is offsetting the “horizontal effect” that increas the cost of fiscal adjustment acceleratly.What's more,the marginal diminishing effect that the financial reserve improve fiscal response is not significant at this stage,and compared to the situation without financial reserves the fiscal space is raised by 8.85% when economic is dim,however,when in normal state is only 8.59%.Household savings can affect China's government debt sustainability through two different aspects: one is to enhance government debt sustainability as a reserve account for government financing;the other one is that it may be due to excessive savings to curb the implementation of active fiscal policy,making the economy development and rising government debt can't match.The results show that there is a tendency that household savings are excessive in our country at present,and the “reserve” effect of residents' savings is covered by the “idle resources” effect of excessive household savings,which eventually reflected as the trend of reducing the available fiscal space.What's more,when the economy is in the abnormal state,financial adjustment of the procyclicality can further reduce the available fiscal space,making the fiscal space reduced by 1.33%.Therefore,through the effective transformation of China's household savings,and resource optimization to promote economic development,is an important way increasing the available fiscal space and achieving the sustainability of government debt.We analyze the direct channels how the financial market development impact the government debt sustainability in China based on the financial market liquidity,including to stabilize the financial asset prices,improve the central government financing environment and ease the local government debt maturity repayment pressure.The results show that financial market development mainly contributes to improve the government financing environment and expand the scale of government debt at present.What's more,with the change of the proportion of government spending,there is no significant and fundamental change of the effect that financial market development on government debt in the two different regions.And using financial market development rationally to smooth the volatility of the government debt risk in the long term can be a good choice for the government in the coming period,and also improve fiscal adjustment and increase government debt balance.It is noteworthy that different financial precautions can cause different fluctuations of government debt risk in the short term after the big crisis in history.