Study On The Relationship Between Local Government Debt And Regional Economic Growth In China

At present,scholars at home and abroad have conducted very fruitful discussion about the causal relationship,the direction and effect between government debt and economic growth,the impact mechanism of government debt on economic growth,and the relationship between fiscal sustainability and economic growth,generally supports the views that there exists one connection mechanism between government debt and economic growth which will be subject to impact of the economic system of internal factors or external shocks,but there is no consensus on what kind of dynamic sustainable path that local government debt and regional economic growth should follow.From the three aspects of the dynamic adjustment,debt threshold,matching optimization,this dissertation put forward the research hypotheses respectively,and establishes different models and carried out empirical test with Chinese data,and then put forward policy recommendations to strengthen local government debt management for China.The first question proposed in this dissertation is the dynamic adjustment mechanism of the relationship between local government debt and regional economic growth.This dissertation analyzes the relationship between Chinese local government debt and regional economic growth from the following three aspects,namely the transmission channels of local government debt to regional economic growth,and the dynamic characteristics of the relationship between local government debt and regional economic growth,and then puts forward the research hypothesis,conducts empirical tests through unit root test,Johansen cointegration test,Granger causality test and state space model,using Chinese macro data.The results show that there is a significant cointegration relationship between the growth index of regional economic growth and the debt ratio of local government.The stock index of regional economic growth Granger causes the local government's debt ratio,and the elastic relationship between local government debt and regional economic growth is dynamic.Based on this,this dissertation draws a conclusion that the correct grasp of the relationship between government debt and economic growth should adhere to a historical dynamic perspective and a dialectical view of classification.The second question proposed in this dissertation is the effect of financial development on the threshold effect between local government debt and regional economic growth.This dissertation analyzes the impact mechanism of local governmentdebt on regional economic growth and the influence mechanism of financial development on "government debt and economic growth",and puts forward the research hypotheses.The dissertation draws lessons from Checherita-Westphal and Rother(2011)and Zhuang et al.(2017)to set up empirical models,and conducts empirical tests using Chinese interprovincial panel data.The results show that there is an inverted U relationship between local government's debt ratio and the per capita GDP growth rate,the inflection point of the debt rate is roughly between 60% and 90%,means that the increase in local government debt in the short term will promote regional economic growth,but will have an inhibitory effect on regional economic growth beyond the threshold.In areas with relatively low level of financial development,the areas with high financial development have the advantage of using financial means to defer debt risk,and the threshold of local government debt rate will be higher.Based on this,this dissertation draws a conclusion that the local fiscal and financial reform and prevention and control of system risk should set up the concept of fiscal and financial unity,and combine the fiscal problems with the financial problems to consider.The third question proposed in this dissertation is the impact of local government debt sustainability on the process of regional economic growth.This dissertation analyzes the relationship between maximized regional economic growth and optimal local government debt,and puts forward the research hypotheses.The dissertation draws lessons from Checherita-Westphal et al.(2014)to design an empirical model,and conducts the empirical test with the whole country samples and sub-samples from different regions,using Chinese interprovincial panel data,and then estimates the local government's debt ratio for maximized regional economic growth in various regions and obtains the local government debt targets required by various regions.The results show that firstly,the estimated coefficient of output elasticity of public capital was maintained significant in all models;the overall coefficient estimated is 0.32,and that of the eastern,central and western regions showed increasing characteristics.Secondly,estimation result of the long-term optimal local government debt ratio is about 80%,and that of the eastern,central and western regions showed increasing characteristics,and the common debt objective in different regions should be set to 50%.Based on this,this dissertation draws a conclusion that the control of local government debt should be based on a sufficient primary surplus,and forward-looking debt control rules should be implemented to predict future local government debt and make corresponding adjustments.The main innovation of this dissertation lies in:Firstly,this dissertation confirms the differentiation features of the relationship between local government debt and regional economic growth due to the specific historical stage and the specific agent variables,and clearly presents the dynamic adjustment features of the elastic relationship between the different government debt variables and the different economic growth variables.Secondly,the effect of the level of financial development on the threshold effect of local government debt is discussed.It analyzes the threshold effect of local government debt on regional economic growth with a dynamic panel data model,and considers the impact of financial development factors on threshold effect.On the other hand,in the process of estimation,it takes into account the dynamic characteristics and heterogeneity and cross-sectional dependence of the interprovincial panel data,and thus obtains the more credible results.Lastly,the influence of the optimal local government debt on the process of regional economic growth is discussed.From the perspective of matching optimization,it assumes that the local government debt only provides fund for long-term investment based on optimal behavior.The financial sustainability of various regions is compared and evaluated,by computing to achieve steady state debt levels for maximum regional economic growth,to explore the relationship between local fiscal sustainability and maximum regional economic growth and local government debt target.