A Study On Local Government Moderate Debt Scaleb Ased On The KMV Model

Since2008China implementing the proactive fiscal policy, in the process ofurbanization, the local government to raise funds through various channels such asgovernment borrowing, enlending funds for national bond, guarantees or deferredpayment, build local financing platform and so on, the methods tend to be diversifiedand concealed, coupled with the widespread lack of specialized debt managementorganization and management methods, and lack of perfect repayment mechanisms andsupervision system, the scale of local government debt continues to expand and debtmanagement is chaotic. In recent years, the local government debt shows the trend oflarge scale, rapid growth and unreasonable structure, and the new borrowing subjectsand borrowing ways become more complex and concealed, which has laid a hugehidden trouble for the healthy development of the economy.At present, the overall scale of local government debt in China has quiteenormous, it aggravating the structural risk in the field of China finance, so to researchthe credit risk of local government debt and moderate borrowingscale is very importantto effective control of government debt risks and ensure fiscal sustainability.This paperto study the local government debt from the perspective of local government debt scale,mainly include the following aspects: The first part, comparison and reference the localgovernment debt scale management mechanism of America, Japan and Brazil, andmake the definition of moderate debtscale.The second part,from the size, structure,borrowing methods and management problems to in-depth analyze of China’s localgovernment debt.Current local government debt in China shows problems such as debtprincipal confusion, debt recessive trend is obvious, the use of local government debtfund is low efficiency.The third part, use the modern econometric method to makeempirical research on multiple factors which influence the scale of China’s localgovernment borrowing and to find out the main influence factor, in order to provide theprecondition and foundation for local government to determine the appropriate debtscale and control debt risk. The basic conclusion of the study is: local fiscal revenueand expenditure rather than GDP are the most important factors to influence the scaleof local government borrowing.The fourth part,based on the idea of KMV model tobuild China’s local government debt credit risk model, and associate the credit riskwith borrowing scale to put forward the moderate debt scale of local government. Studies show that: The credit risks of local government debt is very sensitive to debtscale, When debt scale increases to a certain extent, the government’s defaultprobability will rise sharply; for the same debt scale, the default probability of localgovernment debt based on the actual distribution of fiscal revenue is higher than thedefault probability under theoretical distribution.The fifth part, according to theproblems of local government debt management in China, put forward several policysuggestions of local government debt scale control and risk prevention.