Optimal Debt Contracts With Partial Commitment:the Resolving Of Local Government Liabilities

The 19 th CPC National Congress will take precautions against systemic financial risks as one of the tasks and goals of further deepening the financial reform in China.Strengthening local government debt limit management and budget management,properly handling the inventory debt,has important practical significance for preventing local debt risks and systemic financial risks.The main problem of local government debt in China is the long-term and not stable debt through local financing platform to borrow.In 2014,the State Council No.43 requested that local financing platform companies could not continue to act as a platform for local government to carry out debt financing.In 2017,the No.50 article clearly stipulates that the financial departments and institutions of our country should legally and legally support the financing platform companies to carry out market financing.Therefore,the key to solving the problem of Local government finance platform debt is to deal with maturity debt and its market transformation.This paper tries to use the dynamic debt contract,through the renegotiation mechanism to carry out the debt expansion,properly handle the maturity debt,and on the other hand,to improve the supervision and incentive mechanism of the local financing platform companies by concluding the debt contract terms,and promote the local financing platform to operate actively and repay the debt by its own income.Dissolve the problem of local debt.The study shows that in a partially executable debt contract,the investment fluctuation in the equilibrium state is significantly different from the investment fluctuation when the debt contract is not executed and the debt contract is fully implemented.The investment intensity in the partially executable debt contract is positively related to the output.This conclusion shows that the use of the optimal part of the debt contract can be used in the debt contract.Local financing platform companies establish dynamic debt relationships with their creditors to resolve local debt problems.At the same time,this paper puts forward some policy recommendations on the use of partially executable debt contracts to solve the stock debt and market transformation of local financing platform companies.