Research On The Causes And Growth Effects Of Local Government Debt Expansion

Since the "Four Trillion" stimulus plan in 2008,the scale of local government debt has continued to expand.As of the end of 2018,the scale of local government debt reached 18.461 trillion yuan,an increase of more than 20% over the previous year."Implicit debt" and the problem of maintaining debt replacement by new debt are becoming more and more prominent,so it is reasonable and necessary to study why the scale of local government debt continues to expand and what kind of growth effect local government debt has on the economy.This article first reviews the academic achievements of scholars in related fields around the world from three perspectives: the causes of continuous expansion of local government debt,the effects of local government debt on the economy,and the regional differences in effects.Then this article introduces a brief overview of the types and development of local government debt,and an analysis of the current status of local government debt in terms of absolute scale,relative scale,and comparison between different regions.Then,based on Barro’s research,the model of this paper introduces government departments and then adds government taxation and local government debt into the theoretical model.Deriving the economic growth rate to the government debt ratio can obtain the optimal solution of the government debt ratio,and then proposes local government debt hypothesis of an inverted "U" growth effect on the economy.The theoretical analysis also analyzes the causes of the continued expansion of local government debt and the regional differences in the role of local government debt in the economy through logical derivation and proposes a hypothesis.In the empirical test,the prefecture level city panel data of local government debt in the 10 year period from 2006 to 2015 was used as a sample.The hysteresis was used to control the endogenous problem as well as confirm the proposed hypothesis to be true or false.Finally,the robustness test was completed by replacing core explanatory variables.The conclusions drawn in this paper are as follows:(1)Judging from the reasons for the expansion of local government debt,promotion pressure has a significant impact on bond issuance and the scale of bond issuance,and the interaction of promotion pressure and urban competition pressure has a significant impact on the scale of bond issuance.The greater the promotion pressure is,the greater the possibility of debt issuance and the larger the scale of debt issuance are.In areas where the competition pressure between cities is greater,the promotion pressure on the scale of local government debt is more significant.(2)The coefficient of the first term of local government debt is significantly positive and the coefficient of the second term is significantly negative throughout the country.Enlarging the scale of local government debt can promote economic development at the very beginning,but the scale of local government debt will hinder economic development after exceeding the appropriate scale.(3)There are regional differences in the growth effect of local government debt.The eastern and central regions have an inverted "U" shaped growth effect,while the western region’s local government debt growth has a positive "U" shaped effect.In response to the conclusions drawn by empirical analysis,the suggestions put forward in this paper are:(1)Establish a healthy "promotion view" to avoid the large scale debt issuance of officials because of their personal promotion wishes,and at the same time weaken the impact of regional ranking indicators on official assessment.(2)Improve the transparency of the issuance,and establish a reserve system to prevent the risk of breach of contract by publicizing data and introducing public supervision.(3)Combining regional characteristics,delineating by region and file,and analyzing by region.