The Accumulation Mechanism And Economic Impact Of Implicit Contingent Liabilities Of Local Governments

The orientation of state-owned enterprises in China determines that they have the attribute of policy tools,which provides guarantee for the rational allocation of social resources.The attribute of policy tools of local state-owned enterprises is an important guarantee for the high-quality development of local economy.Local state-owned enterprises play the role policy tools by expanding investment,but the deviation from the profit maximization goal of state-owned enterprises results in the efficiency loss at the micro level.In order to reduce the default risks caused by the deviation between asset size and fund use efficiency of local state-owned enterprises,the guarantee and rescue promises provided by local governments form implicit contingent liabilities of the government and aggravate the hidden risks of local finance.Implicit contingent liabilities of local governments refer to the debts that local governments have to assume due to their own public responsibilities and the need to prevent public risks in addition to relevant laws and contracts,and their actual debt repayment expenditure depends on the occurrence of certain specific events.The statistical results of the national audit office on China's implicit government debt in 2013 show that the main borrowers of local governments' implicit contingent liabilities mainly include financing platforms and wholly state-owned or holding enterprises,which account for 41.3% and 28.26% of the local government's implicit contingent liabilities respectively,accounting for nearly 70% of the total.Thanks to a series of policy documents issued by the central government to regulate the financing behavior of local governments,the financing platform,as the main responsible unit for the implicit contingent liabilities of local governments,has been paid attention to and managed by relevant departments.However,because of the concealment and long-term nature,there is little research on the possible financial risks of non-financing platform state-owned enterprises.In 1996 and 2003,the ratio of government reimbursement expenditure to GDP of China's state-owned enterprises was 0.3 percent and 0.1 percent respectively,which resulted in relatively high fiscal costs,proving that China's nonfinancing platform state-owned enterprises were also an important source of implicit contingent liabilities of the government.Based on this,this paper chooses the implicit contingent liabilities of local governments derived from non-financing platform local state-owned enterprises as the research object.Implicit contingent liabilities has such characters as high uncertainty and concealment,easily ignored by the government when not be innovated,but will cause much damage to fiscal and macroeconomic once it became explicit.So many scholars' research emphasis in the hidden contingent liabilities of government is the explicit conditions of debt and the damage the explicit brings.However,the explicit is an extreme risk event,and it is more normal that implicit contingent liability is implicit,and the implicit contingent liability of the government will also have an impact on the macro economy,which is the focus of the research under the circumstances of nonextreme events.In addition,the impact of implicit contingent liabilities on the macro economy and the accumulation of debt scale before become explicit are closely related to the risk caused by explicitation of implicit contingent liabilities of the government,affecting whether explicitation of implicit contingent liabilities occurs and the risks caused by explicitation of implicit contingent liabilities.The research on the implicit contingent liability of the government before the explicitation is not only beneficial to solve its negative impact on the macro economy,but also beneficial to prevent the occurrence of the explicitation,or reduce the risk caused by explicitation of implicit contingent liabilities.Therefore,this paper mainly studies the debt accumulation mechanism of implicit contingent liabilities of local governments and its impact on economic growth.In this paper,the research on local government's implicit contingent liability mainly solves the following problems: First,the measurement of government's implicit contingent liability.The implicit contingent liabilities of the government come from local state-owned enterprises.The occurrence time and scale of the debts depend on whether the local state-owned enterprises have risk events,which is of great uncertainty.Therefore,it is difficult to measure the implicit contingent liabilities of local governments before they become explicit.Many scholars have studied the measurement method of government's implicit contingent liability,but there is no consistent measurement index.Second,how the implicit contingent liabilities of local governments accumulate before they become explicit.Local state-owned enterprises as the sources of hidden contingent liabilities of local government,the enterprises' debt behavior determines the accumulation of local government's implicit contingent liabilities,and because of the peer effects of enterprises' debt behaviors,the implicit contingent liabilities of local government are influenced by debt behaviors of enterprises in adjacent regions,this is also important factors of accumulation of local governments' implicit contingent liabilities.Finally,the impact of implicit contingent liabilities of local governments on the macro economy and the channels of the impact,and based on the results of this results,we also study the ways to eliminate the negative impact of implicit contingent liabilities of local governments on economic grow.This paper tries to solve the above problems by combining theoretical analysis with empirical analysis.The specific research contents of this paper are as follows: the first chapter introduces the research background and significance,research content and logical structure,etc.The second chapter sorts out the literature about the government's implicit contingent liabilities and local state-owned enterprises,which lays a foundation for the follow-up research.The third chapter of this paper studies the concept of implicit contingent liabilities of local government,and based on the theory of government debt,the theory of corporate governance,the theory of peer effects,and the theory of economic growth,we find the foundation and framework of the later research.The fourth chapter constructs the measurement index of local government's implicit contingent liability formed by local state-owned enterprises,solves the measurement problem of government's implicit contingent liability,and analyzes the changes of intermediate variables in the process of index construction.Chapter five studies the accumulation of implicit contingent liabilities of local governments from the perspective of the debt behavior of local state-owned enterprises.Chapter six studies the influence of the debt behavior of local state-owned enterprises on the implicit contingent debt of adjacent local government,based on the peer effects of enterprises' debt behaviors.Chapter seven studies the influence of implicit contingent liabilities of local governments on economic growth and the ways to influence it.Finally,chapter eight puts forward the main conclusions and policy Suggestions based on the previous research results.After the theoretical and empirical research,we find that :(1)The reason for the substantial increase of implicit contingent liabilities of local governments after 2008 lies in the increase of the debt scale of local state-owned enterprises,rather than the change of default risk of local state-owned enterprises.The default risk did not fluctuate significantly after 2008.(2)The debt behavior of local state-owned enterprises is an important source of the accumulation of hidden contingent liabilities of local governments.The increase of enterprise debt scale and the decrease of capital use efficiency all increase the hidden contingent liabilities of local governments.Among them,the expansion of enterprise debt scale is affected by the advantages of enterprise financing and the expansion of bank credit.In addition,the level of market development also plays an important role in the debt expansion of local state-owned enterprises and the accumulation of hidden contingent liabilities of local governments.(3)The implicit contingent liabilities of local government are influenced by debt behaviors of enterprises in adjacent regions because of the peer effects of enterprises' debt behaviors.When the state-owned enterprise in adjacent region enlarge debt scale,the implicit contingent liabilities of local government increase;When the state-owned enterprises reduce their fund using efficiency in adjacent regions,the implicit contingent liabilities of local government increase.In addition,the peer effect of Banks makes the change of bank credit behavior in adjacent regions affect the expansion of debt scale of local stateowned enterprises in this region,the increase of bank credit in adjacent regions crowd out the bank loan funds in this region,and the debt scale of local state-owned enterprises in this region decreases.(4)Implicit contingent liabilities of local governments,as an economic mean that the government actively chooses to maintain and intervene in the market,plays a role in stabilizing the fluctuation of economic growth during the financial crisis,but have a negative impact on economic growth,through private enterprise debt,investment and bank non-performing loans.Through the transfer of the leverage of local state-owned enterprises to private enterprises and government departments,the reform to improve the efficiency of the use of funds of local stateowned enterprises can resolve the negative impact of local governments' implicit contingent liabilities on economic growth.The innovation of this paper includes the following four aspects:First,this paper chooses the implicit contingent liabilities of the government before the explicitatio as the,and studies the debt accumulation mechanism and economic.Many scholars' research on implicit contingent liabilities of the government focuses on the conditions of debt visualization and the risks caused by debt visualization.The key issue of this paper is closely related to the risks caused by debt visualization,which is helpful to take measures to stop or reduce the risks caused by debt visualization in advance.Second,the research of this paper constructs the implicit contingent liability index of local government to link the efficiency of enterprises at the micro level and the economic growth at the macro level.The government's implicit contingent liability index summarizes the efficiency of local state-owned enterprises at the micro level into a macro index at the provincial level,which can reflect the overall performance of local state-owned enterprises at the provincial level and build a bridge between the micro efficiency of local state-owned enterprises and the macro economic growth.Thirdly,this paper not only studies the accumulation of local government's implicit contingent liabilities from the perspective of local state-owned enterprises' liabilities,but also studies the accumulation of local government's implicit contingent liabilities from the perspective of the debt behavior of local state-owned enterprises in neighboring regions,so as to have a more comprehensive understanding of the formation and accumulation of local government's implicit contingent liabilities.Fourth,this paper studies the influence channels of local government's implicit contingent liabilities on economic growth,which are different from those of government's explicit liabilities.Explicit government debt generally influences economic growth through fiscal and monetary channels,such as government fiscal deficit,tax rate,change of long-term interest rate and inflation,etc.This paper analyzes the influence path of implicit contingent debt of local governments on economic growth from the credit channel.