The Research Of Public Debt Sustainability

The sub-credit crisis in2007has brought hush crash into global financial market and real economy. The countries that fell into sovereign-debt crisis or even are on the edge of bankruptcy has been multiplied since then and trigger large wave of academic research on debt sustainability. Some academics have researched the topic through budget-constrained analysis structure, which highlighted the relationship between interest rate on bonds and the speed of economic growth. Others have embraced the similar way to research the area except adding some other element from real world, and come out with the same kind of outcomes. I notice that almost all papers are working on an unrealistic basis, referring to the certainty that government can borrow the money however big they need because of the strong national creditability. But when public debt becomes unsustainable, government may not be able to borrow the amount of money they need in the credit market, which would trigger the impact of credit market on the public debt. Since credit market has not been considered in the budget-constrained analyzing structure, I would like to introduce credit cycle theory into debt sustainability analyze and try to testify whether government is involved in such a mechanism of credit cycle.The main contents of chapter1、2are about this paper’s background, purpose, logic of thoughts, innovations and weakness. Chapter3focuses on the sustainability of public debt with the perspective of budget-restrained analysis at the pre-and post-debt-ceiling respectively, and the ceiling of public debt is set referring to the threshold of debt sustainability. Based on the discussion above, the reasons why credit cycle makes great efforts will be listed in the chapter’s conclusion. Chapter4comes out of the innovative idea of credit cycle on analyzing the public debt sustainability, before which a brief introduction of credit cycle is outlined. Chapter5innovatively explains the path of explosive growth of public debt under the exogenous shock, by the perspective of credit cycle, under the three different circumstances. Furthermore, the weakness, conclusion and the suggestions on Chinese government will be listed in Chapter6to end this paper.