Local Government Debt Macro Risk Empirical Analysis

After the tax reform in 1994,the local government's purse strings are cut and governance are inflated,local government revenue sources were severely compressed,local fiscal deficit.Plus,limited by the budget law for many years,local governments do not have the government bonds issue right on its own,the newly added investment ability has also been greatly restricted.In particular,our country is in the important strategic economic transition period,economy faced with downward pressure,it is necessary to reform the debt management system for which produced many new problems and challenges,which makes the local finance deficit growing.Under this background,in order to ease the financial pressure,the city construction and maintain daily administrative expenses,local government through a land mortgage nominally non-governmental body contact issuance way to receive money,lead to a huge surge in local government debt scale,and financial risk contains to accumulation.In addition,because the strong correlation between financial institutions and the local government,once local government make a substantial breach,it will increase the local government debt risk exposure,debt financial risk produced will quickly spread to banks and other financial institutions,and then affect the whole economy chain of our country.In this situation,in order to prevent and dissolve the local government debt risks,establish a local government debt early warning system has very important practical significance on economic growth and maintaining the stability of financial markets.on the basis of the international comparison study,we analysis the influence of local government debt scale widening to the China's economic development,the fiscal and financial markets,and built early debt risk warning analysis on the local government risk,the concrete contents are as follows:First of all,we research both short-term and long-term dynamic impact on the economic growth of expand of local government debt scale in China.Through the establishment of a closed endogenous growth model including three departments of household,government and industry,this paper discusses the impact on the stability of the economic system of local government debt scale and related macro policy,and balance path and condition between the local government debt scale and economic growth.The empirical results showed that,the local government debt influence the long-term stability on economic growth and people's living standards.In the shortterm,the expansion of the local government debt scale will promote economic growth,improve the level of employment and improve people's life quality.But from a long-term perspective,with the constant improvement of local government debt issuance level,the actual economic growth rate,fixed assets investment rate,and the quality of residents' life are falling.Secondly,we research the relationship between local government debt scale expansion and the mutual land finance.We explore the interaction between the local government debt,land finance and real estate prices in a unified framework by establishing the budget constraint model which contains these three variables,and we put forward the related economic assumptions.The empirical results showed that,first of all,local government debt and state-owned land are the important factors which affect house prices,as the local government debt scale increases and state-owned land transfer income rising,the house prices is increasing too;Secondly,on the premise of other conditions unchanged,the increase of per capital disposable income and real estate developers loan amount may raise the real estate price level,the increase of real estate completed area will reduce the real estate price level;Finally,once the real estate prices rise more than the people's existing economic bear ability,the real estate prices will certain "crowd out" the urban population growth.Thirdly,we research the influence of local government debt scale extend to the financial market of our country.In this paper,we building a budget constraint model which contains the government,the central bank and the manufacturer,we use this model to analysis the interaction relationship between the local government debt and financial markets.The empirical results showed that,if we control other economic variables,finance development level is the "booster" of local government debt scale,the higher the financial development level,the greater the capacity of the debt;Secondly,there is a positive correlation relationship between the local government debt scale and the government governance level,the higher the level of the local government management,the higher of government's credit level,the bigger the debt financing size;Again,on the premise of other economic condition unchanged,there is a negative correlation relationship between local government debt scale and regional GDP level,it means the higher the economic development area level,the more money it have,the smaller scale of borrowing debt.Fourthly,we study the early warning mechanism of local government debt risk.We choose 10 indicators from 30 provinces and cities in our country from targetedfrom lend,use and pay back three links by improving the KMV model,using factor analysis method to evaluate the size of the local government debt risk of our country,and eventually establish the local government debt risk early warning mechanism network.The empirical results showed that,China local government debt risk is overall under-controlled,no provinces and cities in a high risk of abnormal area,but six provinces and cities such as Neimenggu province are in the high risk area,which need focus attention of relevant departments.