Local Government Debt And Economic Growth

In recent years, with the deepening of reform and opening-up and accelerated urbanization process in our country, along with the 4 trillion stimulus package that the government has been implementing since the financial crisis in 2008, huge fund demand shows up in local government and this financing requirement has led to the continuously rising size of local government debt. Under this background, this paper deals with the question whether local government debt has an influence on economic growth. Based on analyzing current situation of local government debt concerning its size and structure, this paper uses the results of three governemnt debt auditing and applies multiple linear regression method and the empirical results are as follows: First, local government debt does have a positive effect on economic growth but the inverse U-curve relationship between local government debt and economic growth is not found in this paper; Second, this positive effect is stronger in areas where are less developed, have higher financial support and with people moving out; Third, local government debt also influences economic growth in the ways government uses the debt capital. Local government debt used in municipal construction has the strongest positive influence on economic growth, followed by debt used in land purchasing but debt used in people's livelihood does not has a statistically significant positive influence on economic growth; Finally, local government debt has a stronger influence on economic growth in the long run.