Analysis Of The Correlation Between Local Government Debt And Economic Growth

Since financial crisis triggered by the subprime crisis of the U.S.in 2008,the high economy growth rate of PRC has been slowed down.In 2012,the slowed growth rate was overserved and obvious,turning to a medium-high rate.This is the New Normal.Meanwhile,recently the growth rate of fiscal revenue of the local governments declines.Along.with the economy development and the deepen reform is the high speed of urbanization.On the one side,it comes with the dramatically increase of the urban population.On the other side,it leads to the increase of infrastructure,contributing to the desire of capital.These factors make the local governments get financing through platform of investment and financing,or similar channels,instead of leveraging the regulations.This behavior makes the local governments debts increase.The issue on whether the debts can help with the economy is always under the discussion of economists.Overall,the local governments have massive debts,especially some regional governments with noticeable liability ratio.Researching on the influence of local governments debts on the economy growth under the New Normal can not only get the effective management of the debts but also guide the economy development rapidly,smoothly and steadily.Foreign scholars have more researches on the relationship between local government debt and economic growth,both in theory and empirical studies.Chinese scholars studied the issue of central government debt at first,until tax sharing reform in 1994,Chinese scholars began to study local government debt problems,but Chinese scholars' researches about the issue of local government debt problems are mainly focused on the scale,structure,and causes etc.,researches about the relationship between local government debt and economic growth are relatively less,so this paper choose this issue as the research content.On the basis of analyzing the development process and the current status of the local government debt,this paper finds that the asymmetry of the financial and administrative rights of the central government and local governments,the imperfection of the transfer payment system and the reduction of the land revenue are important reasons for the continuous growth of the local government liabilities.This paper analyzes the relationship between local government debt and economic growth from both theoretical and empirical aspects,In the theoretical analysis,in the short term,local government debt affects local economic growth by influencing local investment,in the long term,local government debt affects local economic growth by influencing the total amount of social capital.Through the further analysis of the Barro model,it is found that the relationship between government debt and economic growth depends on the government debt rate,the proportion of tax in the investment,the marginal elasticity of capital and the tax rate.In the empirical test,this paper chooses the provincial local government debt data from 2012 to 2015,introduces the proportion of tertiary industry,population growth rate and regional financial support as control variables to study the impact of local government debts on local economic growth,it is argued that in the eastern,central and western regions,where the degree of economic development is different,the significance of local government debt to local economic growth is different.It is concluded that local government debt hindered the growth of local economy to a certain extent from 2012 to 2015.From the perspective of different regions,the hindrances of local government debt to economic growth are more obvious in the less developed areas of middle and west China than in the developed areas of eastern China.Based on the analysis above,China should strengthen the effective management of local government debt.The policies suggested are as followings.First,the scale of the debts is supposed to be controlled strictly.Second,the level of the regional economy development should be considered.Third,the allocation of property right is supposed to be fair.Four,enhance the financial support policy of central and western regions.Last,make the necessary complement of the related laws,regulations and rules.