A Study Of The Influence Of Local Government's Debt On The Upgrading Of Industrial Structure

After the tax sharing system reform in China in 1994,the local governments' fiscal revenue and expenditure has been quite unbalanced,causing the appearance of their income running behind their cost.Plus,the inspiration to the growth of economy by the local governments because of the Asian financial crisis in 1997 and the global financial crisis in 2008 have caused the scale of local governments' debt to be expanded quickly.Is the effect of the local governments' debt on the development of China's economy positive or negative?Many scholars have their own perspectives,and there is no certainly single answer for this question.Based on this background,I try to do a research about the impact of the local governments' debt on the upgrading of industrial structure,and hope this paper could provide others who want to do more studies about relative issues with some reference.This paper,first,reviewed the related foreign and domestic literatures.Then,it respectively introduced the theoretical bases of government's debt and industrial structure.Next,the paper mainly analyzed the mechanism of the influence of governments' debt on the upgrading of industrial structure from four aspects:items of expenditure,optimizing of resource allocation and improving of the fairness among different generations,local governments' effect on financial market,and their influence and dependence on land market.At last,the paper used the panel data composed by China's all provinces from 2005 to 2015 to build three dynamic panel data models,and applied systematic GMM to estimate these models.Through the empirical analysis,the paper got the following three conclusions.First,local governments' debt has positive effect on the upgrading of industrial structure overall,meaning that increasing the debt can help ameliorate the industrial structure.Second,China's local government has inverse u-shaped influence on industrial structure,so a proper debt scale could maximize the impact on the latter.Third,the local governments' debt can affect the industrial structure by stimulate the growth of economy.However,owing to that the debt also has inverse u curve impact on the growth of economy,the principle that local governments should hold a proportionate ratio of scale of debt to that of the local economy is advisable,too.Based on the study,several suggestions for the government were offered.(1)The current fiscal system should be adjusted and the refinement about the issue of local governments' bonds should be properly loosed.(2)The old evaluation method for officials should be amended.(3)Efficient and comprehensive system for local governments' debt's management,supervision,and borrower punishment should be enhanced.(4)The role of the local governments in the economy should be changed in order for them to better tackle the relationship between "the visible hand" and "the invisible hand".