The Research Of Soft Budget Constraint Leads To Local Government’s Over-debts In China

The Chinese Budget Law in 1994 explicitly stipulates that “ According to the principle of living within our means and fiscal balance, all levels of local government draw up budget and the deficit is not allowed.” Therefore, theoretically speaking, local governments can not have excess debts. But the National Audit Office’s survey results show that our local government debts have a highly expanding tread, the high level of debts go against with the Budget law. Using the deviation degree of the budget and final accounts to measure the degree of the soft budget constraint of the Chinese government,Through the regression analysis, we found that the degree of deviation of the financial income is negative correlation with the scale of local government debt, and the deviation degree of financial expenditure budget is positively related to the scale of local government debt. This paper studies the effect of the soft budget constrain on the local government debts from two angels: theoretical analysis and regression analysis. Objectively, as the system of tax allocation, project system and promotion incentives are imperfectly, the local government need to live on loans. And subjectively, because the local government and financial institution have a nature of “economic person”, which inducing moral hazard and making the government run into debts.The legislative purpose of the new budget law in 2015 is that “Regulate the behavior of government revenue and expenditure, strengthen the budget constraint.” To this end, analyzing the formation mechanism of local government is critical of excessive indebtedness. Therefore in order to harden the budget constraints, except to reform the current taxation system, make a clear division of government and the market, the more importantly to promote the marketization of municipal investment step by step, as well as strengthening financial budget constraints, to avoid financial and moral risk...