Research On Local Government Debt From The Perspective Of Finance

The reform of tax distribution system characterized by fiscal decentralization in 1994 has brought into full play to the initiatives of Chinese local governments,who invested in public infrastructure construction promoting economic and social development and playing a positive role in resisting the impact of the external financial crisis.Whereas,they have also borrowed a large number of debts through financing platform companies,PPP model,government funds and government purchase services,by promising to repay or provide guarantees with fiscal revenu,forming greater financial risks,which have been one of the three major battles of the central government in recent years.But there are few in-depth researches on the local government debt risk from the financial perspective.Therefore,this paper studies the problem of local government debt from the financial perspective.First,the latest development of local government debt problem is analyzed,a new empirical study on the relationship between local tax revenue and local debt is made.On this basis,this paper focuses on three specific financial perspectives,such as the impact of local government debt on the risk of commercial banks,the impact on money supply and the impact on the transmission efficiency of monetary policy interest rates.All these researches deepens the understanding of local government debt risk from the financial perspective.Fianlly,some countermeasures and suggestions are put forward on the basis of the conclusions of the study.The specific contents are as follows:Firstly,on the basis of combing,summarizing and commenting on the existing researches of local government debt at home and abroad,this paper makes a detailed and in-depth analysis of the latest situation of local government debt in China.Then,this paper makes a thorough study and analysis on the development course,scale,main structure of issuing debt and source of funds of local government debt among the provinces in China,and probes into the hidden debt risk of local government under the new situation.The conclusion is that,on the whole,the momentum of rapid expansion of local government debt has been controlled,but the risk of local government debt varies from region to region.The risk of local government debt in some regions exceeds the international warning line,which poses a greater risk to local economic development and social stability.What is more serious is that the hidden debt risk of local governments in China,characterized as large scale,rapid development and uncertain bottom number,has serious risks.Secondly,according to the existing local government debt theories,this paper starts from the hypothesis of public choice theory that local government and its officials are "rational economic man",and holds that the way of maximizing their own interests is to maximize their own administrative resources.Under the tax-sharing system,maximizing administrative resources is to promote local tax revenue by investing in public infrastructure.Therefore,local tax revenue has a certain relationship with the growth of local government debt.The paper carried on empirical research by establishing a panel regression model based on the debt and tax data of various regions in China.The results show that there is a significant positive correlation between the scale of local tax revenue and the scale of local government debt,while the correlation between the scale of value-added tax,which is of national tax revenue,and the scale of local government debt is not significant.Further research found that the economic development level did not significantly improve the above results in the virtual variable regression classified by the characteristics of economic development level and geography.However,the empirical results classified by the size of local government debt show that the growth of the local tax revenue is in accordance with the increase of local government debt,but the efficiency of debt investment and financing to promote local tax growth decreases with the increase of scale.Therefore,the final conclusion is that in order to maximize the resources of their own administrative posts,local governments tend to promote the construction of public infrastructure through debt investment and financing,and promote the growth of local government tax revenue.However,the role of debt investment and financing in promoting local tax revenue decreases with the increase of scale.Therefore,the rapid expansion of local government debt leads to larger local government debt.Thirdly,because commercial banks are the main purchaser of local government bonds,and local government recessive debt mainly docks with commercial banks and shadow banks.Once local government debt(especially recessive debt)has credit default and liquidity default risk,it will eventually be shown as financial risk.Therefore,the local government debt risk is essentially a financial risk.The paper analyzes the mechanism of financial risk and its vulnerability from macro,meso and micro levels.Then the paper gives a detail analysis on the way of transmission from local government debt risk to financial risk with the contingent claim analysis model.Through the deduction of the transformation from local government debt leverage rate to bank risk,the evolution logic and mechanism of local government debt risk to financial risk are analyzed.The empirical results show that there is a significant positive correlation between the bank bad rate and the scale of local government debt.And the bonds issuing of the local governments can reduce the bad rate of banks.Fourthly,based on the analysis of the principle and mechanism of money supply,according to the changes of capital flow and debt nature caused by local government debt replacement,this paper analyses the changes of basic currency and credit currency caused by the replacement during the whole process of local government debt replacement.The analysis shows that from the perspective of single debt replacement process,in a short time,the funds changes would cause the fluctuate of the basic currency,M1 and M2.From the basic monetary level: when issuing local bonds,the central bank needs to provide liquidity support through various monetary policy tools to increase the basic money supply;in the process of replacement of local government bonds,bond issuing funds cause the basic money to decrease first and then increase in the conversion of bank accounts of debtor subjects such as Treasury government deposit accounts and local financing platforms.As far as the broad money creation of commercial banks is concerned,when issuing bonds,commercial banks will increase M2 while enterprises will reduce M1.In the process of converting bank accounts of debtors such as Treasury government deposit accounts and local financing platforms,M2 decreases first and then increases,M1 increases all through the process.When funds are used to repay the stock bank loans,M2 and M1 decrease;when funds are used to repay personal loans,M1 decreases and M2 remains unchanged.Fifth,the essence of local government debt replacement is that local government debt financing,such as bank loans,is converted into local government bonds,which leads to the expansion of bonds scale and the change of yields in the bond market.At the same time,the reduction of loan local government debt will lead to the change of credit interest rates.These two changes affect the interest rate of monetary policy,thus affecting the transmission efficiency of interest rate of monetary policy.Empirical results show that the local government bonds yields change promote the transmission of interest rates in the money market and have a good transmission efficiency to achieve the macro-monetary policy objectives in China.After the replacement of local government debt,with the increase of the scale of local government bonds and the level of marketization of interest rates,the issuance of local government bonds has significantly improved the transmission of interest rates in the money market through the changes of national bonds.Efficiency;Local government debt replacement has a positive impact on the conducting efficiency monetary policy interest rate through changes of credit interest rate;comparatively speaking,the impact through bond market yield is greater than that through credit interest rate.The above results show that the development and changes of local government debt has a significant impact on financial policy and financial market.Finally,on the basis of summarizing the research conclusions,this paper puts forward some policy suggestions on the management of local government debt and the prevention and mitigation of its risks.In terms of transforming of the economic development mode and the structure upgrading,we should correctly grasp the relationship between government and market,investment and GDP growth,economic growth and high-quality development;in terms of deepening the reform of fiscal and taxation system and strengthening the debt management of local governments,we should build a scientific and complete relationship between central and local fiscal powers,a standardized fiscal and taxation system and a transfer payment mechanism,and an effective management system of local government debt.In the aspect of financial reform,we should deepen the reform of financial system,the reform of monetary policy and financial market,strengthen financial supervision and standardize financial market.The innovation of this paper lies in:(1)Starting from the empirical relationship between the growth of local tax revenue and the expansion of local government debt,this paper explores that the main source of the expansion of local government debt is the maximization of government officials' own interests.Starting from the hypothesis of "rational economic man" from the perspective of public choice,taking the relationship between the scale of local tax revenue and the scale of local government debt as the breakthrough point,this paper establishes a panel regression model based on relevant regional data.Through empirical research,it proves that local governments and their officials promote the growth of local tax revenue through large-scale debt investment and financing,in order to maximize administrative resources.Achieving the goal of maximizing self-interest is an important source of rapid expansion of local government debt.This provides a new way of thinking and perspective for comprehensively and accurately understanding the rapid expansion of local government debt,deepens the understanding of local government debt risk,and has important theoretical and practical significance for local government debt risk prevention and governance.At the same time,to some extent,it explains the objective reality that tax revenue growth exceeds GDP growth in China.Meanwhile,to examine the reform and construction of local tax system from the perspective of local government debt is conducive to a more comprehensive understanding of the practical significance of the transformation from business tax to value-added tax.The construction of local tax system should not only consider the availability of tax sources,but also pay attention to its role in guiding the economic behavior of local governments,thus deepening the understanding of the construction of local tax system.(2)From the perspective of financial risk,this paper theoretically and empirically analyses the ways and mechanisms of the transmission of local government debt risk to financial risk.Based on the analysis of the nature of financial risk and the causes of its vulnerability,this paper studies the evolution mechanism and ways from local government debt risk to financial risk,and makes an empirical study on the bank risk caused by local government debt by using the data of bank and local government debt.The study finds that the local government debt risk will increase the bank's credit risk and liquidity risk by increasing the bad rate of commercial banks.This provides a new way of thinking for the study of local government debt from the financial perspective,and deepens and develops the study of local government debt risk.(3)Taking local government debt replacement as the starting point,this paper explores the impact of local government debt replacement on money supply and monetary policy interest rate transmission efficiency.Further expanding the perspective of understanding the local government debt from the financial perspective will help understand the financial risks and financial characteristics of local government debt,help grasp the nature of local government debt risk in essence,and is beneficial to local government debt risk management.It provides a perspective for the financial sector to formulate financial policies and deepen financial market management,and it is also conducive to the improvement of financial supervision and the efficiency of financial policy.It is helpful for the central government to consider the local government debt risk and financial risk from the perspective of overall economic and social development,so as to formulate effective macro-control policies,better take measures to strengthen the local government debt risk management,prevent systemic risks,and promote the healthy and high-quality development of the national economy.