The Impact Of Local Government Debt On House Prices

Over the past 40 years of reform and opening up,China’s economy has gradually entered a new period of slow growth after experiencing rapid growth.It is considered to be the two major drivers of China’s long-term and rapid economic growth-local government investment and real estate.On the other hand,the long-term accumulation of local government debt and rising house prices have become two potential risks threatening China’s economic stability at this stage.Local government debt and house price are two seemingly unrelated issues,but under the system of political centralization,fiscal decentralization and land system in China,the economic behavior of local government has played a link between local government debt and house price,and even made them closely related.The problem of local government debt and house price is not achieved and unchanged overnight.But with the continuous accumulation and change in the process of China’s economic development.Based on the above practical problems,it is necessary to think about local government debt and house price in the same framework.Firstly,this paper analyzes the evolution of fiscal and tax system and land system under China’s macroeconomic environment,so as to discuss the different development stages of China’s local government debt and real estate,and put forward the existing problems of China’s local government debt and real estate,Then we use the overall concept to think about the impact of local government debt on house prices under China’s institutional system.By selecting the simultaneous equation model of provincial panel data,this paper discusses the impact path of local government debt on house prices.First,local government debt investment expenditure promotes regional economic development and causes house prices to rise from the demand level;Second,the fiscal revenue and expenditure is unbalanced,local government debt is excessively dependent on land finance,local governments tend to use high land prices to obtain high income,and high costs push up house prices.The empirical results show that local government debt will have a positive effect on house prices either through the path of "debt investment-economic growth" or "debt-land finance";Further zoning discussion,in contrast,the eastern region has a stronger driving force for the rise of house prices due to economic development,while the rise of house prices in the central and western regions depends more on land finance.Therefore,from top to bottom,this paper puts forward the ways to solve the problems of local government debt and house price:first,accelerate the reform of fiscal and tax system,solve the embarrassing situation of local government revenue and expenditure imbalance from the root,and gradually get rid of the excessive dependence of local governments on land finance;Second,prudently promote the reform of the land system,break the original dual barrier of land and speed up the construction of land marketization;Third,improve the local debt management system,realize the openness and transparency of government debt information as soon as possible,and establish a local government debt risk index system and a debt fund use management system;Fourth,establish a long-term mechanism for real estate,accelerate the implementation and differentiated construction of the real estate tax system,build a diversified housing system,stabilize prices and expectations,and return housing to its residential attribute.