Research On The Impact Of Local Government Financing On The Supply Of Non-economic Public Goods In Chin

Since the reform of the tax distribution system in 1994,there has been a serious imbalance between the financial and administrative power of local governments in China.Local governments bear a great deal of responsibility for the expenditure of economic construction and social development.The rapid urbanization process that began in the late 1990 s generated strong non-economic investment demand for public goods,which resulted in the mismatch of capital supply and demand in the supply of public goods and generated financing demand.This demand cannot be met by the current financial system,so the emergence of local government debt provides a good solution.The significance of local government debt for local governments to provide non-economic public goods is as follows: first,compared with tax and other financing methods,borrowing can obtain the funds needed to provide non-economic public goods at a lower cost.Second,in terms of the time period,since the benefits generated by non-economic public goods need a long time,the debt term can be matched with the benefit term of non-economic public goods.From the actual situation of our country at present,there is still a big gap between the feasibility and practice of using debt to supply non-economic public goods.Due to fiscal decentralization,political championship and other reasons,local governments in China tend to favor infrastructure construction,which leads to excessive inclination of fiscal expenditure to infrastructure construction.As of June 2013,the total amount of local government debt used for municipal construction and transportation infrastructure construction in China was 9.895.801 trillion yuan,accounting for 59.07% of the total debt.It can be seen that China’s current local debt,especially urban investment bonds,the most important investment is still economic public goods.Then,will the issuance of local government bonds affect the supply of non-economic public goods? This question needs further reflection.Since 2003,China has made it clear that government functions should be transformed,and the direction has been to strengthen and improve macro-control,pay more attention to social management and public services.However,as China’s development stage has entered a mature period,public expenditure must be transformed from economic public goods such as infrastructure construction to non-economic public goods such as education,security and social welfare.On the one hand,the increase in the supply of non-economic public goods is an important guarantee for the harmonious development of society and the satisfaction of the well-being of Chinese residents.On the other hand,non-economic public goods can also promote economic development by enhancing citizens’ quality and stimulating investment and consumption,which is of great significance to realize China’s sustainable development in the future.In China,the fiscal expenditure responsibility of local government includes economic construction and various social undertakings.In particular,prefecture-level cities and the following expenditure responsibility content is more,mainly including administrative expenses,economic construction and public service supply.In the case of limited fiscal revenue,local governments will indeed give priority to fiscal revenue to economic construction.However,local government bonds,especially urban investment bonds,can well adapt to the expenditure demand of local governments,so that part of the original fiscal revenue used for the expenditure of economic public goods is replaced by urban investment bonds,and the replaced part can be used for the supply of non-economic public goods.That is,the issuance of urban investment bonds promotes the supply of non-economic public goods to a certain extent.With the transformation of local government assessment methods and government functions,local governments pay more and more attention to the supply of non-economic public goods,and the original public goods expenditure structure is bound to be improved.Based on this idea,this paper mainly studies the following problems.First,the impact of local government debt financing on the supply of non-economic public goods in prefecture-level cities.For prefecture-level city governments,the essence of urban investment bonds is a revenue that is not subject to budget supervision.Prefecture-level city governments have complete autonomy over the use of urban investment bonds.In the current mode of performance evaluation and political promotion,local governments are more inclined to provide a large number of economic public goods to develop the economy.Therefore,urban investment bonds are mainly invested in economic public goods.Then the part of the original fiscal revenue used for economic expenditure can be replaced by urban investment bonds to a large extent,thus forming a kind of "revenue utility" of urban investment bonds.With the transformation of government functions in China and the emphasis on the assessment of people’s livelihood expenditure,prefecture-level city governments also have internal motivation to provide more non-economic public goods for residents within their jurisdiction.Therefore,the fiscal revenue replaced by urban investment bonds for the expenditure of economic public goods can be more invested in non-economic public goods.Therefore,the issuance of urban investment bonds indirectly promotes the supply of non-economic public goods.By using the non-equilibrium panel data of 292 prefecture-level cities from 2008 to 2016 for analysis,this paper finds that :(1)the indirect promoting effect of urban investment bonds on the supply of non-economic public goods can improve the expenditure structure of public goods in China on the whole.(2)there is regional heterogeneity in the improvement effect of urban investment bonds on the supply of non-economic public goods.The eastern region has a high degree of economic development,so the improvement effect is obvious.However,the economic development in the central and western regions is relatively low,so the improvement effect has not yet been reflected.Second,the influence of government debt financing competition in prefecture-level cities on the supply of non-economic public goods.Under the debt governance mechanism of administrative contracting system implemented in China since 2011,the governance mechanism of local government debt in China has become that the central government retains the power to set debt targets and devolves the power of daily debt supervision and distribution to provincial governments.In the same province,the issuance of urban investment bonds of all prefecture-level cities will be decided by the provincial government,which is bound to control the debt scale of each prefecture-level city in order to regulate and manage the provincial debt risk.Therefore,the debt financing of prefecture-level city governments will form a potential competition.On the premise of setting provincial debt targets,prefecture-level cities will compete for as many financing resources as possible.Under this competition for debt financing,the amount of debt in each prefecture-level city will increase,thus increasing the disposable income of local governments.However,when such disposable income is used for the construction of economic infrastructure,the funds in the budget of prefecture-level city governments will be more invested in non-economic public goods under the transformation of the assessment method of local government functions.Through analyzing the balance panel data of 222 prefecture-level cities in China from 2013 to 2017,this paper finds that :(1)spatial spillover effect exists in the competition of government debt financing with prefecture-level cities in the province.(2)competition with provincial local government debt financing can improve the supply of non-economic public goods within the province.(3)In terms of the heterogeneity of non-economic public goods,financing competition with local governments in the province will promote the expenditure of non-economic public goods including education and medical care,but will not promote the expenditure of social security.In total effect,debt financing competition with the provinces will promote the supply of non-economic public goods such as municipal government education,social security and health care in the whole province.Third,provincial government debt financing plays a regulating role in promoting the supply of non-economic public goods by issuing bonds.Under the vertical decentralized governance model between governments,the attention of provincial governments to the supply of non-economic public goods will also be reflected in the level of local governments in prefecture-level cities,where the issuance of urban investment bonds can positively regulate the supply of non-economic public goods.The issuance of general government bonds by provincial governments directly reflects the importance attached by provincial governments to the supply of non-economic public goods and the direct effect of provincial governments on the supply of non-economic public goods by prefecture-level cities.At the same time,the prefecture-level city government will increase the supply of non-economic public goods,thus keeping in line with the provincial government’s goals.When the scale of issuance of urban investment bonds in prefecture-level cities increases,the proportion of expenditure of economic public goods in fiscal budget revenue will decrease,the fiscal flexibility will increase,and the supply of non-economic public goods will also increase.Therefore,the general government bonds of provincial governments have a positive regulating effect on the supply of non-economic public goods in prefecture-level cities.This article selects 2010-2017 China’s 30 provinces and cities autonomous prefecture,a total of 271 level city as the research object,found that:(1)the provincial government’s emphasis on the economy of public goods supply will promote the level of economy of local government public goods supply,the prefecture level to economy of local government as the provincial government of public goods supply generally increase with the increase of the scale of government bonds.(2)the issuance of general bonds by provincial governments has a positive regulating effect on promoting the supply of non-economic public goods.Under the condition that provincial governments attach importance to the supply of non-economic public goods,the supply of non-economic public goods by local governments in prefecture-level cities will also increase.(3)Judging from the heterogeneity of non-economic public goods,debt financing of provincial governments only has a positive regulating effect on social security expenditure of prefecture-level city governments,but has no significant regulating effect on education and medical care.It should be noted that the indirect role of local government financing competition in promoting the supply of non-economic public goods does not mean that local governments can issue unrestricted urban investment bonds.Since China’s "four trillion" stimulus plan in 2008,local governments have accumulated high debt risks,and China has gradually regulated local government debt risks since 2011.Therefore,it is necessary to discuss the supply of non-economic public goods in a more effective way.The opinions of the state council on strengthening the management of local government debt issued by China in 2014 clearly stated that "if the development of public welfare undertakings without revenue really requires the government to borrow general debt,the local government shall issue general bonds for financing,mainly to be repaid from general public budget revenue." This provides a feasible perspective for the supply of non-economic public goods from a more macro perspective.Many non-economic public goods,such as municipal roads and opera houses,can be used for a long time after construction is completed,benefiting future generations.If only the current fiscal revenue is used as the source of construction funds,it will cause intergenerational inequality.Therefore,through the issuance of local bonds,the debt repayment period can be matched with the use period of non-economic public goods supply,so as to achieve intergenerational equilibrium and promote intergenerational equity to the greatest extent.Proposed reference to the government at the provincial level to the economy in the form of public goods supply general government bonds,allowing prefecture level local governments also can issue of government securities to the economy of public goods supply,and budget income should be the source of repayment,which guarantee the prefectural government budget balance,according to the need to issue bonds,both control the risk of local government debt,and ensure the economic efficiency of public goods supply.