Research On The Economic Effect Of Local Government Debt In China

In recent years,local government debt plays a positive role in promoting economic development and coping with crisis,in the meanwhile,the expanding fiscal gap and the trend of rapid inflation in government debt scale have already become significant factors affecting the building of scientific development and harmonious society.This paper attempts to analyze the local government borrowing from the perspective of economic growth effect,and discuss the influence of local government debt on economic growth,which focus on improving the system and mechanism to help control the negative effects of local government debt,and eventually boost the economic development in a sustainable,healthy and rapid way.Although a large number of domestic and overseas studies have investigated the effect of local government debt on economic gain,it seems that the relevant research between government debt and increase might not draw a clear conclusion,whether on theoretical or empirical level.On the basis of previous studies,this essay attempts to start with the influences,causes and countermeasures of government debt on economic growth in foreign countries such as the US,Europe and Japan,then conduct analytical investigation based on the situation of our country by comparing with different environmental conditions in economy,society and politics.First,this article reviews relevant domestic and international literature and provides descriptions of development process and current situation of local government debt.Next,the proper econometric models could be applied to conduct empirical research by intercepting panel data from 31 provinces and cities,which using related theory of government debt on economic growth from the perspective of short term and long term.Subsequently,this paper tends to analyze the influencing factors further and summarize correlative experience and lessons.Finally,reasonable suggestions could be proposed for improving the effect of government debt on economic growth combining with the reality of our country.The paper is arranged specifically as follows.Chapter 2 and 3 will provide a review of previous related literatures and give a description about current local government debt situation.Chapter 4,5 and 6 will discuss and analyze the effect of government debt on economic growth in short and long term respectively.Chapter 7 will present a comparison with the results.Chapter 8 will propose suggestions that might improve the effect of government debt on economic growth.This study aims to find out how other changes in macroeconomic variable could affect non-linear relationship and threshold value of debt from a quantitative view.In the meantime,the differences between developed and developing countries could be pointed out.Specifically,the VAR model could be estimated with local government debt as dependent variable and national income,consumption and investment as independent variables.Impulse response function could be conducted to examine the relationship of the above variables and the economic effect of local government debt in short-term of our country could be estimated further.Local government debt could be placed under the theoretical framework of long-term economic growth,by examining Harrod-Domar model,Neoclassical economic growth model,New Cambridge economic growth model and New economic growth model.The simplest model applied to test non-linear relationship between local government debt and economic growth could be estimated as quadratic term model.Also the square item of government debt scale could be introduced into the economic growth model.By analyzing the significance test of non-linear relationship and grasping the relation between government debt and various economic variables,the long-term effect of local government debt on economic growth might be concluded.This paper tends to present the following research conclusions:(1)Regional economic growth could be affected by various factors including the investment,scale and use efficiency of local government debt capital,as well as the level of regional finance development and the degree of population aging.Moreover,the effect of government debt on economic growth seems to be conditional,which means local government debt might cause different influences on economic growth under different external economy condition and management mode.(2)The growth rate of local government debt seems to exert positive impact on variables such as the rate of increase in GDP,citizen consumption,investment and government purchase expenditure.Local government debt could be used as a policy instrument to promote economic growth in short-term by counter-cyclical policy.In the long run,government debt economy tends to present significant non-linear effects,whether east or central and western regions.(3)There seems to be a U-shaped relationship between the government debt ratio and regional economic growth,which shows indirectly that the scale of government debt could not judge whether it is reasonable to borrow.For instance,faster economic growth could be realized in regions with both high and low debt ratios.Thus,massive borrowing might not be the necessary condition to boost economic growth.(4)It seems that the starting point for consideration of government debt scale control and economic growth should be the balanced development of regional economy while the government ratio should not be taken as the only measure for judging whether or not the local borrowing scale is reasonable as well as the level of debt risk.It might be more significant to control the national overall debt scale for guarding against debt risk,relative to the unified government debt red-line developed for provinces and cities.Starting from the current features of China's economic development,adapt to the new norm,must be deeply concerned about local government debt growth effect,the focus of attention to the conduction mechanism of local government debt on economic development.As a stimulating factor of consumption and investment,achieve the effectof government debt on the total demand;as a production factor inputs.The realization of the government debt to promote economic growth through adjusting the conduction;liquidity and interest rates,the government debt in the operation of the real economy.Between local government debt and economic growth is also a nonlinear relationship,economic growth can also react to the demand of debt and debt balance.Therefore,reasonable palm Control of local government debt investment,it will effectively play the role of local government debt to promote long-term economic growth.