Research On The Early Warning System Of Local Government Debt Risk

Since the reform and opening up,the countries of the world have witnessed the rapid development of China's economic leap.China has long been among the ranks of high GDP growth.After the reform of the fiscal and taxation system in 1994,local governments have taken more responsibility of regional economy.However,the imbalance between the right of property and the right of affairs makes the local government mostly support the scale of fiscal expenditure by means of debt.Especially due to the impact of the 2008 financial crisis,China's economic downward pressure has increased.In order to maintain stable economic development,the central government implemented a proactive fiscal policy,which caused the scale of debt has expanded dramatically.It becomes one of the problems that need to be solved in the present.The main purpose of this paper is to construct a local government debt risk early warning system that is applicable to China's current actual situation,paving the way for further research.According to the existing problems of building an early warning system in China,with reference to foreign experience,this paper proposes to construct a local government debt risk early warning indicator system with the expected debt default rate and comprehensive evaluation index as the core,and introduces the calculation process of the expected debt default rate,which is based on the KMV model and VAR model,and comprehensive evaluation index which is based on the entropy weight method and TOPSIS method.An empirical analysis is carried out for 31 provinces in China.The empirical analysis shows that the expected debt default rate of Qinghai,Hainan,Liaoning and Guizhou provinces exceeds the international threshold of 0.4% when the ratio of available funds for debt service to general public budget is 20%.While the ratio is 15%,the number of provinces exceeding the critical value of 0.4% reached 10.According to this,the provinces and cities were divided into different rescue levels.With the measurement of the expected debt default rate and comprehensive evaluation index,7 provinces and cities in China are in “not earlywarning”,10 provinces and cities in China are in “mild warning”,3 provinces and cities in China are in “moderate early warning”,and 10 provinces and cities are in “highly early warning”.Most provinces and cities need to take measures to resolve risks.Finally,in order to construct China's local government debt risk early warning system,this paper starts from the various aspects of early warning,and puts forward proposals for reforms and supporting policy measures in terms of information disclosure,establishment of organizational management system,and increase of sources of debt repayment funds.