Empirical Study Of Local Government Debt Expanding And Its Influence On Bank Credit Risk Base On Replacing The Business Tax With VAT

After the global financial crisis in 2008,local government debts began to expand.On October 2,2014,after the State Council issued Circular 43,local government debts entered a new round of expansion;and from 2012 to May 2016 On the 1st,China began to implement of “Replacing the Business Tax with A Value-Added Tax”.The tax burden of taxpayers dropped significantly.At the same time,local governments lost their important sources of tax revenue,and further expanded the debt needs of local governments.At this point,the credit scale and credit risk of commercial banks also have been affected.The local government debt expansion at this time is quite different with the previous one.Also has particular impact on bank credit risk,the problem is much more prominent.However,the research focused on this field is not enough.Therefore,it is very necessary to conduct an in-depth study of the relationship between local government debt and bank risks at this crucial time--after the full implementation of “Replacing the Business Tax with A Value-Added Tax” in our country.This article starts with the background of Replacing the Business Tax with A Value-Added Tax and conducts a theoretical study on the mechanism of local government debt expansion and credit risk of banks.Then use empirical analysis of the bank credit risk data,local government debt scale data and "Replacing the Business Tax with A Value-Added Tax" data from 2008 to 2016,Analyze the impact of local government debt expansion on bank credit risk after "Replacing the Business Tax with A Value-Added Tax".The results show that:(1)The scale of local government debt is positively correlated with the bank credit risk,which indicates that with the expansion of local government debts,the credit risk of banks is rising gradually.Only controlled the expansion speed and scale of local government debts can effectively control the bank credit risk;(2)"Replacing the Business Tax with A Value-Added Tax" also has significant effect on the credit risk of a bank.But the time of full implementation is not enough,so there maybe will have more significant impact in the future.Based on the above conclusions,this paper believes that the key to reducing bank credit risk is to control the scale of local government debts effectively.In the end,this article put forward some relevant and helpful policy recommendations.