A Research On The Securitization Of Local Government's Liabilities

According to the Budget Law of People's Republic of China, it is prohibitive for the local government to borrow money without permission. In recent years, because of the financial deficits of local government, variety of debts appears with a tendency of being bigger. And it is a heavy burden for the local finance. So it is urgent to deal with local government's liabilities.The paper below defines the concept and the content of the local government's liabilities, and analyzes the direct causes and the deep motivation. It reveals the defects in the current institute of public finance, which will give rise to the liabilities of local governments. Then, the author discussed the risk of liabilities, as well as the harmfulness it will bring. The author suggests that different kinds of liabilities must be dealt with different means and some kinds of liabilities should be securitized to be unveiled. It discusses the theoretic foundation of the securitization of the local government's liabilities. It advances that the securitization can reduce the "moral risk" of local governments, and that local governments should be main provider of local common goods, and that local government's bond is greatly different from the central government's bond so the former couldn't be entirely displaced by the latter. Now it is the appropriate time to securitize some kinds of local liabilities. Based on these analyses, this thesis put forward any proposal that experiments should be made in some cities to issue municipal securities. These cities should meet a series of terms. And the author tries to design a brief system of issuing local government's bond. At the same time, the paper advises that a series of reforms should be advanced, including perfecting the rule of law and system of insuring, reforming the institute of budget and transfer payment, setting up the system of evaluation, improving on the self-restricting of local governments.