Study On The Risks Of Local Government Debt And The Transmission Path Of Its Impact On Macroeconomic Objectives In China

To alleviate the negative impact of the financial crisis on the domestic economy,Since the financial crisis in 2008,the Chinese government has promulgated a package of fiscal expansion plan.The positive fiscal policy has effectively stimulated domestic demand and reduced the destructive impact of the crisis on the domestic economy.However,the level of government debt and fiscal deficit has increased significantly,and the scale of local government debt has increased rapidly.In addition,with the continuous advancement of the domestic urbanization process,the capital demand for infrastructure construction projects and urban-rural integration development has accelerated,and thus further increased the financial pressure in China.Moreover,the boundary between the government and the market is not clear,and the direction of financing expenditure is not effectively supervised.As a result,the government’s debt burden continues to increase and become one of the major risks in national economic construction.The complex credit relationship among the central government,local government and local financing platform makes the sustainability of local government debt connect with the stability of financial system.The outbreak of the new epidemic in the first quarter of 2020 poses a greater challenge to the financial capacity of the central and local governments in China.In order to effectively prevent and control the epidemic,governments at all levels have significantly increased the expenditure on epidemic prevention,and steadily promoted various positive financial policies.During the epidemic period,the fiscal revenue at all levels decreased sharply,the fiscal deficit of local governments continued to expand,and local government bonds became the main way to slow down the impact of the epidemic.With the excessive local government debt in China,increasing the debt burden will have a negative impact on economic growth.Local government debt is a direct and long-term factor that affect China’s economic development.The negative impact of local government debt expansion on the national economy can not be ignored.In order to cope with the financial crisis,the total amount and burden rate of public debt continued to rise,according to practice of financial and economic development in developed countries.On the one hand,they did not get rid of the plight of the real economy;on the other,some countries had debt crisis,which seriously affected their recovery process.In China,the epidemic has intensified the positive growth of local government debt,further dividing the debt risk of various regions,and thus intensified the imbalance between regions.The sustainability of local debt fundamentally depends on whether the industrial structure is perfect and whether the economic resilience is strong.Therefore,the efficiency of the use of bond funds has become an important issue to be concerned about.In the unusual?period,governments at all levels should take the central finance as the foundation,and cooperate with the corresponding monetary policy to guarantee employment and people’s livelihood as the bottom line to jointly help the steady recovery of the economy.The central finance should play a more active role,and the transfer payment in the areas with severe epidemic situation can be appropriately increased.As they increase the proportion of debt financing,local governments should pay attention to the sustainability of finance and debt,focusing on whether the use of bond funds can promote the transformation and upgrading of local industries to form a virtuous circle of debt industry income and to set of monetary policy to ensure the support of funds to the real economy.In the meanwhile,we should pay attention to the coordination between monetary policy and fiscal policy.From the perspective of China’s economic reality,local government debt promotes investment and short-term economic growth.At the same time,the continuous accumulation of debt scale and increasing debt burden also contain many risks.The large-scale local public debt will not only threaten the financial sustainability,but also affect the financial stability,and ultimately harm long-term economic development.This study focuses on the debt risk and its transmission path of local government in China,and mainly addresses the following aspects/issues:firstly,the measurement of local government debt risk.Local government debt includes explicit debt and implicit debt.Many scholars have explored and studied the scale and risk of local government debt,but there is no clear definition of debt and consistent measurement index.Secondly,how the local government debt risk is transmitted to the macroeconomic objectives.China’s local government debt is implicitly guaranteed by the central government,and the risk of local government debt is bound to affect the macro-financial stability.Through a series of related factors such as government investment and fiscal revenue,it will ultimately affect the macro-economic goals such as economic growth,price stability,full employment,balance of payments and so on Medicine,precise control.Finally,simultaneous interpreting and comparing the effect and effect of different chain of local government debt risk,finding out a scientific quantitative model to conduct an empirical test of different paths to ensure the rationality of variables,the rationality of the modeling,and the accuracy and comprehensiveness of the results.This paper attempts to solve the above problems by combining theoretical analysis with empirical analysis.The specific research contents of this paper are as follows:the first chapter introduces the research background and research value,the logical structure and content arrangement,as well as the innovation and deficiency of the paper.The second chapter summarizes and sorts out the literature on the measurement of local government debt scale,debt risk research,and the economic impact of debt burden.At the same time,it sorts out the relevant literature of quantitative model used in the analysis,which lays the foundation for the follow-up theoretical and empirical research.The third chapter introduces the public debt theory and risk management theory to explain the theoretical basis of the article.Utilizing the field of local government debt theory,it also explores the development process and current situation of local government debt in China.The fourth chapter analyzes the connotation and denotation of local government debt,and further explores the "inverted U-shaped" effect of local government debt burden on economic development,and uses the modified KMV model to construct the local government debt risk index,which lays the research foundation for the later research on the transmission of debt risk.The fifth chapter constructs the land financial transmission path of local government debt risk.The sixth chapter constructs the low efficiency project transmission path of local government debt risk.The seventh chapter integrates the two paths to form the overall transmission path of local government debt risk transmission to economic indicators,and carries out empirical research on the overall transmission path,explores the effect of the two paths,and makes a comparative analysis.Finally,this paper summarizes the research contents of the above chapters,draws the conclusion of the article,and puts forward the policy suggestions of local government debt risk management according to the theoretical analysis and empirical results.Theoretical and empirical studies show that debt risk is transmitted to macroeconomic objectives through the path of land financial dependence and inefficient government.Specifically,the path of dependence on land finance:land transfer fee income is an important source of debt repayment of local governments.Excessive borrowing of local governments will lead to higher dependence of debt repayment on land finance.Therefore,local governments will strictly control land supply and push up land prices and house prices.The rise of house prices will promote the public to increase savings to buy houses or repay housing loans,thus reducing consumption.The reduction of consumption will have a negative impact on economic growth,and at the same time,it will lead to the reduction of price level and deflation pressure.On the contrary,controlling the excessive expansion of local government debt will promote economic growth and alleviate the deflationary pressure.The first path is the crowding out effect of inefficient government projects on other sectors,which affects economic growth through affecting consumption and investment demand,and also affects full employment.The second path is the overcapacity effect of inefficient government projects,which will produce a large number of ineffective supply,leading to deflationary pressure and affecting price stability.The main innovations and expected results of this paper are as follows:First,from the perspective of research,this paper studies the local government debt risk and macroeconomic objectives under the same framework,accurately and systematically combining?the two risk transmission channels of Fiscal Dependence and inefficient government projects,analyzes the mechanism of each transmission channel in details,and theoretically demonstrates each link in the chain.Secondly,in terms of research methods,the data selected in this paper are all the local government bonds and financing platform bonds of 31 provincial regions from 2009 to 2019.The data are comprehensive and detailed.Firstly,the improved KMV model is used to construct the local government debt risk index,and the default rate and default distance of local government debt are used to accurately measure the local government debt risk;Fava is introduced R model,through the principal component analysis method to reduce the number of related indicators,so as to solve the problem of inaccurate model estimation caused by the large number of factors.Thirdly,the empirical analysis shows that local government debt expansion has an impact on economic growth,price stability and full employment through government investment crowding out path,while land finance dependence path and overcapacity path have relatively limited impact on macroeconomic objectives.From the extended research results,we can find that the change of liquidity level is more effective and more significant than interest rate change in regulating local government debt risk,but the effect is relatively unstable and uncontrollable,which needs to be used cautiously.