Research On Risk Of Local Government Finance And Its Legal Countermeasures

With the vigorous development of market economy, risks caused by increasinglyfrequent financing activities supported by local governments have become prominent, whilethe comprehensive evaluation of these risks, as well as the proper control thereof not onlyrelate to the development of local economy, but also affect the stability and prosperity of ourcountry. After the breakout of the global financial crisis in2008, local governments of Chinahad taken various financing measures for fund raising, making great contributions to gettingout of the economic crisis, but it is necessary to think about whether these measures are underthe scope of laws, regulations and policies. Once the financing activities have gone beyondthe limitation of law, huge risks are readily accumulated without the due constraints, andmeanwhile, such accumulation of risks not only is resulted by the "speculative" behaviors oflocal governments but also originates from the unreasonable factors of the fiscal and taxsystem of China. Thus, this paper endeavors to explore the financing risks of localgovernments and the origin thereof and propose legal countermeasures and suggestions forrisk control through empirical analysis, value analysis and comparative research.This paper will be divided into four parts for exploration:The first part goes to introduction. This part will focus on the significance and purpose ofthe research and explain the research methods, main content and innovative aspects through abrief description of the situation of the local governments’ financing and its risk, and theexposure to the insufficient research on the risk of local governments’ financing.The second part firstly defines the financing of local governments and analyzes twotypical financing patterns, then draws out the meaning of local governments’ financing riskand discusses five possible risks such as debt risk, banking credit risk, land conservation risk,government credit risk and social stability risk. And meanwhile, deeply analyzes the specificcauses of local governments’ financing risk from the perspectives of the tax allocation reform,the local government status, the vacancy of responsibility subject and the imperfect creditsystem.The third part mainly probes for legal countermeasures to dispose the risk of localgovernments’ financing. That is, on the one hand, prevent risks from the system by reasonably allocating property ownership and authority of the central government and localgovernments, strengthening the transfer payment system, and improving the governmentbudget system and fiscal and the taxation system reform; and on the other hand, put forwardmethods for the disposal of risks caused by the investment and financing platform of localgovernments and conscientiously solve the payment problems of the debts arising from suchfinancing by starting with the normative establishment and operation system of the financingplatform of local governments. Besides, this paper makes an attempt to put forward an idea of“bankruptcy system of a local government” as the final system for the fiscal risk of localgovernments, which also gives a warning to the excessive financing of local governments andconstrains the unlimited debt impulse, so as to protect the interests of creditors and establish arational financing system for local governments.The fourth part is conclusion. In which, the paper holds that only the reform of fiscal andtax system and the improvement of relevant laws, regulations and systems for the disposal offinancing risks of local governments, these risks can be prevented and solved, and moreover,that such financing risks should not be exaggerated and correctly realizes that the financing bylocal governments is beneficial to the development of local economy only if it is under propercontrol.