Research On The Moderate Limit Of Local Government Debt In China

In 13 th five-year period,China's economic development has entered a new normal and the problem of local government debt has became a risk point which get heightened attention.In order to prevent risks and regulate debt management,the Ministry of Finance has divided local government debts into general debts and special debts according to the source of repayment funds in2015.They determine the debt limits reasonably and incorporate government debt into budget management.In the context of this policy,how to formulate the debt limits of each province and rationally arrange the structure of bond issuance is crucial to the steady promotion of local economic development.This paper takes local government debt as the research object,and discusses the issue of the appropriate quota of government debt from the perspective of public investment demand and fiscal sustainability.First of all,this paper expounds the related concepts of the appropriate limits of local debts,and lays a solid theoretical foundation for the article by combing the theory of public goods and fiscal decentralization and the theory of appropriate scale of public debts.Then,from the current situation of debt,this paper analyzes the debt scale of local governments at the national and provincial levels,as well as the pressure on debt service in the next few years.In the discussion of the moderate limit of debt,this paper proposes three preconditions: the first condition is that local governments try to meet the needs of local public investment.Based on the analysis framework of production function,this paper uses panel data to establish an empirical model to obtain the level of public investment demand in each region,that is,the maximum amount of local government public investment.According to the empirical results,in recent three years,local governments are not subject to the ceiling in terms of investment in basic areas and investment in debt funds;The second and the third precondition are from the perspective of fiscal sustainability.The principal and special debt principal and interest to be repaid in the current period shall not exceed the difference between the budgetary revenue and expenditure.Taking the general debt as an example,this paper uses the panel data of 31 provinces from 1998 to 2017 to establish an auto-correlation model to estimate the general public budget revenue and expenditure in 2019 and thefollowing three years,Then,this article contacts the amount of repayment of interest in each year to get the lowest general debt increase in the current year.The main research result of this paper is to obtain the limit range of government debt.Moreover,this paper also points out that under the severe situation of large current debt and high debt ratio,the formulation of our actual debt limit should be as close as possible to the minimum limit.Finally,based on theoretical analysis and empirical analysis,this paper proposes policy recommendations on debt limit management and issues identified.