The Impacts Of The Local Government Debt On Economic Growth And Its Comparison Between Regions

The global financial crisis in 2008 produced a shock to China's economy.In order to sustain stable economic growth,China's central government invested 4 trillion yuan in the infrastructure construction to stimulate economy.In response to the plan,local government at different levels established financing corporations as a channel to collect money to increase the local public investment,consequently,the local government debt soared.On one hand,the local government debt has promoted regional economic development and accelerated economic resurgence.O n the other hand,the rising government debt scale may raise regional economic debt risk and cause debt crisis because of the expanding fiscal gap and the rising government debt scale.At present,China's researches mainly focus on the cause,application and risk of the local government debt,and a few of them pay close attention to the effects of local government debt on economic growth.Besides,due to the unavailability of data,most of the researchers choose other relative variable as a substitute for the government debt,which may cause biased error.Therefore,studies on the influence of local government debt based on the real data and the condition of C hina are undoubtedly necessary.This paper tends to better study the effect of local government debt on economic growth.Firstly,this study states the mechanism of the local government debt on the base of the fiscal and tax system,the pattern of economic growth and the land market,followed by describing the characteristics of local government debt on three aspects of time,region and category.Secondly,the theoretical mechanism that the local government debt drives economic growth are presented on five angles as industrial investment,land finance,mobility and some other factors.Thirdly,on the basis of analysis relevant to theoretical mechanism,panel data of 112 cities ranged from year 2012 to year 2014 are referred in empirical analysis to study the process during which local government debt influences regional economic growth.In the meantime,in order to compare the influence of local government debt in different areas,the full sample is divided into groups on the basis of urban dimensions and debt ratio.Finally,descriptive analysis of government debt of Sichuan province is presented as a case study to analyze the potential risk of debt in Sichuan and influence on Sichuan's economic growth.The main conclusions of this paper are:(1)Take full sample in general,the local government debt significantly promote the regional economic growth.To meet the requirement of industrialization and urbanization,local governments can improve the regional infrastructure construction by borrowing debt.(2)The promoting effect on regional economic growth of local government debt in large and medium-sized cities is more notable than that in small cities.Governments of large and medium-sized cities with better resource endowment and economic condition are able to make better use of the debt.However,the promoting effect on regional economic growth of debt in small cities will be reduced because small cities lack of excellent infrastructure.(3)The promoting effect on regional economic growth of local government debt in areas with low debt ratio is more notable than that in areas with high debt ratio.Areas with low debt burden can better control the risk of debt and make better use of the financing,while excessive debt burden may crowd the private sector out and offset the positive effect on economic growth of local government debt.(4)Investment is the main transmission channel that government debt promotes the economic growth.(5)The impact of local government debt on regional economic growth by the way land market act is positive.Local governments with borrowing debt are able to reduce industrial land price,increase industrial productivity directly and enhance the investment promotion indirectly,even though it is not continuable in large cities to promote economy by land income.(6)The modest debt scale of local government can bring economic growth by an increase of liquidity of capital and assets,whereas,excessive debt burden will decline the economic mobility and retard the economic growth.