A Study On The Operation Mechanism Of Local Government Debt In China

In recent years,China's economy has transformed from a stage of high-speed growth to a stage of high-quality development.In order to achieve the goal of steady growth,the central government has adopted active fiscal policies to stimulate the economy.Local government debt,as an important policy tool,has become the driving force of economic growth.However,the rapid expansion of its scale and the imperfect management system lead to the accumulation of debt risks,and local government debt has become a "grey rhinoceros" threatening China's economic development.China's newly revised Budget Law in 2014 brought local government debt into budgetary management.Subsequently,the Ministry of Finance issued various management measures,provisional regulations,opinions and guidelines to further improve and perfect the local government debt management system.With the sudden arrival of the "black swan" of COVID-19,domestic economic activities declined rapidly,risk aversion gradually increased and consumption chain shrank.In order to maintain economic stability,the Government Work Report 2020 proposed that the proactive fiscal policy should be more proactive and effective.As an important means to drive the economy,local government debt should play a key role.However,at present,there are still some problems in the local government debt management in China,such as fuzzy issuance rules,low operational efficiency,unclear debt repayment responsibility and lagging supervision responsibility,which lead to unreasonable debt structure,low operational efficiency of debt,and social doubts on the sustainability of debt,which seriously affect the credibility of the government.Most of the existing literature focuses on the research of local government debt risk and expenditure efficiency,and lacks of examining the defects and loopholes of local government debt management from the link of "borrowing,using and returning" experienced by local government debt operation,and establishing targeted management norms on this basis.On the basis of referring to the existing literature,this paper firstly defines the relevant concepts of local government debt and its operation mechanism,and sorts out the theories of local government debt.Then,it takes each link of local government debt operation as the foothold.Based on the theory of public goods and fiscal decentralization,path dependence,cost-benefit analysis,intertemporal budget constraint and power constraint,the theoretical framework of local government debt operation mechanism is established.Then it summarizes the historical evolution of local government debt in China,analyzes the distribution of local government debt in scale and structure,as well as the necessity of local government debt in China,and lays a realistic foundation for the follow-up research.In the empirical aspect,using the provincial panel data,using the progressive multiple difference method,the system GMM,the analytic hierarchy process and the entropy method combined method to analyze the "borrowing,using and repaying" link of the local government debt operation in China.The main contents are as follows:The first is to analyze the issuance mechanism of local government debt in China.Based on spontaneous local government bonds since the role of the path of the bond issuance costs,also the thinking of using quasi natural experiment,the spontaneous pilot local government debt in China as an exogenous shock,using provincial panel data from2011 to 2016,using progressive multiple finite difference method to evaluate local government bond issuance pilot for bond issuance and influence mechanism of interest spread.It is found that from the perspective of bond issuing interest rate,the spontaneous pilot of local government bonds reduces the interest rate spread of local government bonds issuing,which indicates that there is a phenomenon of "inverted interest rate" in the pilot process of local government bonds issuing in China.From the perspective of issuing scale,the pilot issuance of local government bonds has a significantly positive impact on the scale of local government bonds,indicating that the pilot issuance of local government bonds expands the size of bonds,but has a greater impact on bonds with longer maturities.In addition,due to the time overlap between the pilot of replacing business tax with VAT and the spontaneous pilot of local government bonds,dummy variables of "replacing business tax with VAT" were added to the robustness test to test the reliability of the conclusion,and it was found that the pilot of "replacing business tax with VAT" had little interference to the pilot of local government bond reform.The second is to study the effect mechanism of local government debt expenditure.According to the main investment direction of local government debt funds,the evaluation index of local government debt expenditure efficiency is established.Using the provincial panel statistical data from 2012 to 2017,the index weight is given by CRITIC method,and the lag period of local government debt output is calculated by combining the systematic GMM method.The input-output method was used to empirically evaluate the debt expenditure efficiency level of local governments in 30 provinces of China.According to the empirical results,the following conclusions are drawn :(1)There is a one-year lag period in the debt output of local governments in China,so it is necessary to include the output lag effect in the calculation of debt expenditure efficiency;(2)According to the calculation,the efficiency level of debt expenditure of nearly half of the 30 provinces shows a downward trend,indicating that there is a large space for improvement in the efficiency of local government debt expenditure in China;(3)Considering the level of local economic development,the empirical results show that the level of local government debt expenditure efficiency is not necessarily related to the level of local government's own economic development.The third is to analyze the solvency of local governments in China.The solvency of local government debt is related to the sustainability of local government debt and the guarantee of a virtuous cycle of local government.Therefore,it is necessary to measure the solvency of local government debt in China.By constructing the debt paying ability index and using the provincial panel data from 2015 to 2019 in China,the debt paying ability of local governments in China is measured by combining the analytic hierarchy process(AHP)and entropy method.The results show that the debt paying ability of most provinces except a few provinces is improved to varying degrees,indicating that the debt paying ability of local governments in China is enhanced.At the same time,Arc GIS software is further used to analyze the spatial distribution of local governments' debt paying ability.It is found that the debt paying ability of local governments in China differs greatly among the three regions.The debt paying ability of eastern provinces is higher than that of central and western provinces,which is in line with the level of local economic development.Through the coefficient of variation,it is found that the eastern region also has a large difference in the three regions,indicating that the debt paying ability of the eastern provinces has a large difference.Fourth,the international experience of local government debt operation mechanism.Throughout the debt management system of developed countries,it is found that due to the differences in political system,economic level,cultural background and so on,the debt in each country presents its own characteristic management mode.In debt on the running mechanism,the United States is the world's local government debt to run the most complete,experience the most rich countries,Britain's debt performance evaluation mechanism is relatively sound,Japan's debt scale is larger,but not debt crisis,therefore,this article selects the above three countries debt operation mechanism is introduced,by analyzing the three local government debt to run the development course,main content,Summarize the achievements of its management and provide international experience for China to construct a scientific and reasonable local government debt operation mechanism.Based on the conclusion of theoretical research and empirical research,this paper puts forward the optimization path of local government debt operation in China from four perspectives: issuance,use,repayment and supervision of local government debt.In terms of debt issuance,we should improve the legal system of local government debt issuance,implement the dynamic adjustment mechanism of debt ceiling management,optimize the special bond issuance mechanism,and promote the transparency system of hidden debt.In terms of debt expenditure,a performance appraisal system combining quantitative and qualitative measures should be established,tax regulations and accounting systems related to debt should be improved,project library construction should be optimized,and the use and management of debt funds should be standardized.In terms of debt repayment,we should seek diversified debt repayment methods,broaden the sources of debt repayment funds,establish a flexible debt repayment maturity structure,and actively explore ways to resolve hidden debts.In terms of debt supervision,we should set up a normalized supervision platform,establish a systematic and independent third-party debt supervision institution,build a symbiotic system of horizontal and vertical debt supervision,organize inspectors to carry out professional policy training,and improve the professional level of the supervision team.