Research On Risk Measurement Of Local Government Debt Default Based On KMV Model

With the rapid development of our country's economy,the expenditure of local government on infrastructure and public service project construction,stabilization of people's livelihood and so on is more and more large.Under the tax-sharing system,the responsibility of local governments is increased,and the revenue generated by tax is far from the funds needed.At this point,local governments can only borrow to maintain the necessary funds for economic and social development.But before 2015,local governments in China have not been granted the right to issue bonds freely.At this time,various financing platforms have emerged one after another,which has solved the urgent needs of local governments.But over time,large amounts of hidden debt have flooded governments at all levels,leading to The complexity of the local debt structure and the large number of debt-raising entities make it more difficult for the government to manage and monitor the local government debt effectively.The implementation of the new Budget Law has greatly changed the structure and operation of local government debt.Therefore,how to construct a scientific and effective prediction model of local government debt default risk under the new policy,and accurately predict the local government debt default risk,has an important and far-reaching significance for the government and investors to prevent and resolve the risk.The existing research on local government debt default risk measurement can be roughly divided into two directions.The first is to establish a comprehensive evaluation system and risk early warning model to evaluate the relative credit rating of local government debt.The second is to measure the default probability and default distance by constructing a concrete local government debt credit risk measurement model,that is,KMV model.Compared with the first method and the second method,from the perspective of default distance,the probability of default in the future period is calculated by using static historical data,and the effectiveness of measurement is improved obviously,and then the credit situation of local government debt can be intuitively reflected.With With the implementation of the New deal in 2015,urban debt issued by local financing platforms has withdrawn from the historical stage,and the issuance of local bonds has become the only way for local governments to borrow,and the debt structure and main body of local governments have been simplified.It provides an opportunity for us to use the KMV model to study the risk measurement of local government debt default.Based on this,this paper takes the local government of 31 provinces and cities as the research object.According to the characteristics of short history of local government debt in China,the KMV model is selected to calculate the default distance and default probability of local government credit risk,and then the local government debt default risk is evaluated.In the construction of the KMV model based on the local government debt default risk measurement,it is assumed that the guaranteed public revenue follows Markov stochastic process,and the funds used to repay the debt are assumed to come from the guaranteed public revenue.The KMV model is extended,and the relevant data of 31 provinces and cities from 1994 to 2017 are used as samples for empirical analysis?In the empirical part,firstly,the panel data model is constructed to forecast the public revenue in 2018 and 2019,and the guaranteed fiscal revenue is determined according to the rigid fiscal expenditure of the local government.Secondly,the extended KMV model is used to calculate the volatility and yield of guaranteed financial revenue.Finally,based on the issuance of local bonds,the amount of debt repaid by local governments over different periods of time is calculated.Finally,the KMV model based on local government debt default risk measurement is used to calculate the expected default probability and default distance of local government debt in 31 provinces and cities in 2018 and 2019.Calculated default probability Taking 0.4% as the critical value,this paper evaluates the results of local government debt risk measurement,and draws the following main conclusions:(1)from the regional point of view,the local government debt default risk in China is obviously regional.The probability of default in the eastern region is significantly lower than that in the western region.The provinces with default risk are mainly concentrated in the west and northeast.In terms of time,the local government debt risk in China is generally in a controllable state.But 2019 compared to 2018,the risk of local government debt default has a further expansion trend.(2)by using different guarantee ratio to measure the risk of local government debt default,it is concluded that each province has a tendency to further expand the risk of local government debt default.Minimum fiscal guarantee ratio and minimum revenue required to maintain local government credit.