Local Government Debt?Spillover Effect And The Debt Risk

In recent years,the scale of local government debt in China has been expanding rapidly.Local government debt investment has externality and spillover effect.At present,local government debt investment is mainly based on public utilities and infrastructure construction.The investment cycle is long and the rate of return is low.In many cases,it is not possible to obtain direct income through investment itself for a long time.If the local government debt invest correctly,it can bring significant spillover effects for the local,improve the enterprise's production and operation environment,and will help to improve the production efficiency of enterprises,thus improving the local TFP(Total Factor the Productivity),promoting the society to improve the overall level of output,which will be conducive to a steady growth in government revenues,for the debts of the government to provide more security,reduce the debt risk.On the other hand,if the expansion of the scale of local government debt increases the demand of capital market financing,the financing cost,inhibiting the expansion of enterprise investment scale,will eventually lead to the ascension of the debt risk.In the current background,Researches about our country local debt and the relationship between the total factor productivity,to improve the efficiency of local debt investment,reduce the pressure on local government debt in our country,to prevent systemic local fiscal default event is of great significance.This paper uses panel data at the prefecture-level city level in China,based on two-way fixed effect model and instrumental variable regression,to explore the impact of local government debt scale expansion on regional total factor productivity growth and its action mechanism.The empirical research found that:(1)There is a significant negative correlation between the proportion of local government debt in GDP and the total factor productivity of the region,which along with the expansion of local government debt in the ascension of indebtedness inhibits the growth of total factor productivity,suggests that the current local government debt in China did not have enough positive spillover effect,not effectively promote the output,in turn,promote the development of economy,so the future of the local government will face greater debt service pressure,the debt risk has not been properly avoided.(2)There are two channels of transmission for the expansion of debt scale expansion for total factor productivity growth.First,by increasing the tax burden of industrial enterprises,enterprises will deal with higher operational pressures,which affects the efficiency of production and operation,and thus there will be a negative impact on growth of the total factor productivity;second,the increase in the size of government debt will raise the debt issuance rate,and the increase in the size of the local debt debt rate will inevitably lead to higher financing costs for enterprises and private investment,resulting in higher resource efficiency.Private sector shifts to less productive public sector and ultimately inhibits growth in total factor productivity.(3)There are obvious regional differences in the above-mentioned effects of the debt burden rate of local debt on total factor productivity growth.Due to the large debt scale and excessive government debt burden in the eastern region,government debt has a more effective role in raising interest rates and increasing tax revenue.The debt burden rate has a stronger inhibitory effect on the growth of total factor productivity in the eastern area,while the midland and western regions do not have a significant negative impact.Different from previous research on local government debt,this paper focuses on the "use" process of "borrowing-using-returning" of local government debt,analyzing the spillover effect of debt from the perspective of government debt fund use efficiency and further studying debt risk,so as to improve the theory of the use of local government debt funds in China;In addition,the use of total factor productivity as a research object can help to study how local government debt affects the economy,not just making directional judgments.At the same time,the influence of local government debt on regional total factor productivity is taken as the basis to judge the debt risk,and the research conclusion has long-term effect and sustainability;In terms of debt data,the research data of this paper includes both explicit and implicit debt,and the measurement of debt scale is more comprehensive and accurate,avoiding the problem that the scale of local government debt may be underestimated to draw more conservative and not suitable for practical conclusions.Through theoretical analysis and empirical research results,this paper believes that the negative spillover effect of local government debt in China is more apparent.The continuous expansion of local debt has a negative impact on the growth of regional total factor productivity,suppresses the economy's potential for growth and fiscal sustainability,which reduces the government's long-term solvency,larger risks to local debt in the long term.