Research On The Impact Mechanism Of Local Government Debt On Financial Risks In My Countr

The leverage ratio of government departments is generally rising in the worldwide,and the government debt problem has become a major risk in the economic development of all countries.In 2020,China’s government sector leverage ratio was 45.6%,with an increase rate of 5.5 percentage points and 5.8 percentage points higher than during the Asian financial crisis and the global financial crisis respectively,reaching the highest level in history.Among them,the central government leverage ratio was 20%,and the local government leverage ratio was 25.6%.The local government of China undertakes the important responsibility of accelerating the urbanization process and promoting the local economic development.The pressure of fiscal expenditure is very great,especially after the reform of tax sharing system,there is a mismatch between fiscal power and authority,and the contradiction between fiscal revenue and expenditure is more prominent,so the local government keeps increasing the debt financing scale.By the end of 2020,the balance of local government debt was 25.66 trillion yuan,accounting for 55.12%of the total government debt.The continuous expansion of local government debt,especially the growth of hidden debt,has not only brought huge debt repayment pressure and debt risks to local governments,but also has a significant impact on the financial sector through the ways of financial institutions,financing platforms,shadow banking,real estate market,bond market and so on.Based on the above background,this paper firstly reviews the domestic and foreign research literature on local government debt and the impact of local government debt on financial risks,reviews the development process of Chinese local government debt,and analyzes the main characteristics of the scale and structure of local government debt at the present stage.From the relevant theories and objective facts that the scale expansion of local government debt has an important impact on the financial field,it can be concluded that the macro-transmission mechanism and microtransmission mechanism of the impact of local government debt on financial risk.Secondly,based on the theoretical analysis of the impact of local government debt on financial risk,the transmission mechanism of the impact of local government debt on financial risk is empirically tested from multiple dimensions,such as time dimension,cross-section dimension and individual dimension,respectively from the macro and micro perspectives.Thirdly,the nonlinear effect and spatial spillover effect of local government debt on financial risk are empirically tested by constructing threshold effect model and spatial effect model.Finally,based on theoretical analysis and empirical test,the main research conclusions of this paper are analyzed,and relevant policy suggestions are put forward to further optimize local government debt management and prevent and resolve the impact of local government debt expansion on financial risks.The main conclusions of this paper include:First,the research on the development status and characteristics of Local government debt in China shows that the total balance of local government debt in China is large and the growth rate is fast,especially the hidden debt is large and lacks transparency.The overall risk of local government debt is still within a reasonable range,but local risks in some regions and industries are becoming more prominent and spreading to other regions and sectors.Due to the close link between local financial departments and financial institutions,local government administrative intervention in the financial institutions,commercial credit system of finance and land height dependence,as well as the local government debt and its term mismatch between the financing project,the local government debt risk is easily spread to the financial sector,financial stability.Second,from a macro perspective,empirical test shows that the expansion of local government debt has both direct and indirect effects on financial risks.The larger the scale of local government debt is,the greater the financial risks will be,especially in the eastern region.The expansion of local government debt has an indirect impact on financial risks through three intermediary variables,namely macro financial leverage,money supply and land finance,thus verifying the macro transmission mechanism of local government debt to financial risks.Third,from the micro perspective of financial institutions,empirical tests show that the expansion of local government debt has a significant positive impact on the liquidity risk and credit risk of commercial banks.Meanwhile,the expansion of local government debt scale will have an indirect impact on the operational risk of commercial banks through the three intermediary variables of credit expansion,shadow banking and credit term structure,thus verifying the micro transmission mechanism of local government debt to financial risk.Fourthly,the threshold effect model and spatial econometric model are constructed to show that the impact of local government debt on financial risk has nonlinear effect and spatial spillover effect.Taking local government debt scale itself,money supply and land transfer fee income as threshold variables,the threshold effect model test results show that there are threshold effects between local government debt and macro financial risks.Taking local government debt scale itself,credit scale,shadow banking scale and credit maturity results as threshold variables,the threshold effect model test results show that there are threshold effects between local government debt and commercial bank risks.By establishing a spatial econometric model,this paper empirically tests the spatial spillover effect of local government debt on financial risk from the perspective of spatial correlation.Financial risk has a spillover effect between neighboring regions.When financial risk increases in one region,it will adversely affect the financial stability of neighboring provinces through the flow and aggregation of financial resources.The empirical conclusions,reflects the regional financial risk between the local government debt and obvious spatial correlation and spatial heterogeneity.It also underlines that there is imbalance of economic development and financial development in various regions.The expansion of regional government debt not only increases local financial risks,but also induces the accumulation of financial risks in other regions due to the existence of spatial spillover effects.In view of the above research conclusions,this paper puts forward the following policy suggestions to prevent and defuse financial risks caused by local government debt:First,strengthen the management of local government debt.We will continue to deepen the reform of tax sharing system,reform the performance assessment system of local governments and officials,standardize and innovate local government financing models,manage debt risks of local government financing platforms,and ensure the repayment sources of local government debt.Second,we will strengthen risk prevention in the financial system.It is necessary to strengthen the supervision of the financial system,improve the local financial supervision mechanism by strengthening the risk supervision of commercial banks,and strengthen inter-regional cooperation in financial supervision,so as to improve the modernization level of financial supervision.We need to make financial institutions more independent in their decision-making and break the budgetary constraints of local governments and StateOwned enterprises through market-based operation and management.The "financial illusion" of financial institutions covering the bottom of local and central governments’ debts and paying for their debts should be completely broken,and a unified and vertical market-oriented financial management system should be finally established.It is necessary to prevent and control financial risks through cooperation within and outside the region,strengthen the mutual supervision mechanism of financial institutions within and outside the region and the coordination and cooperation of financial supervision departments.Third,in preventing the linkage between fiscal and financial risks,it is necessary to avoid the absence and offside of fiscal and financial functions.Government departments should devote themselves to the realization of public functions and avoid direct intervention in economic activities.The financial sector strengthens inclusive financial services,improves the allocation efficiency of financial resources,and obtains more comprehensive financial information through technological and financial means to provide assistance for fiscal policies.Moreover,on the basis of defining the boundary between fiscal and monetary policies,we should strengthen policy synergy,maintain coordinated development and jointly defend against economic and financial risks.