Empirical Study On The Impact Of Local Government Debt On Local Economy In China

The evolution of local government debt in China has experienced a tortuous process from scratch.Its development itself is an important embodiment of China’s fiscal system reform and is embedded in the overall background of economic and social development and transformation reform.The problem of local government debt has always been one of the significant problems plaguing the regional economy in China.The emergence of local government debt,to a large extent,reflects the contradiction between the budget management system in a specific period and the gap between local government revenue and expenditure.After the reform of the tax distribution system in 1994,the fiscal revenue moved up and the fiscal expenditure moved down,and the local governments were faced with a huge fiscal gap.After the financial crisis in 2008,to stabilize and promote economic growth,countries around the world have stimulated economic development by borrowing a large amount of debt,which has led to the rapid growth of government debt in many countries and the occurrence of the sovereign debt crisis in some countries,which has made the sustainability of national finance and economic development face great risks and challenges.Since the financial crisis,China has also implemented a series of economic stimulus plans,and local governments need to bear most of the funds themselves,resulting in the continuous growth of the local government debt scale,among which the explicit and implicit debts of local governments are expanding rapidly.With the slowdown of economic growth and the decrease in fiscal revenue growth,the pressure on local government debt is further increasing.Based on this,this paper empirically studies the impact of local government debt on the regional economy in China.The research purpose and content of this paper are as follows: first,it is to sort out scholars’ theoretical views on the impact of local government debt on economic growth and high-quality economic development and summarize some regular conclusions from the existing theoretical literature.The second is to explore the development process,scale,and structure of China’s local government debt as well as the internal causes of its continuous expansion.The third is to empirically analyze the impact of local government debt on regional economic growth.The fourth is to further analyze the heterogeneous impact of different regions and different types of local government debt on regional economic growth.The fifth is to explore the threshold effect of local government debt on regional economic growth and analyze and compare its threshold law.The sixth is to empirically test the mechanism of local government debt affecting regional economic growth.The seventh is to empirically study the impact of local government debt on the high-quality development of the regional economy and the heterogeneous impact of its components.The research significance of this paper lies in the following aspects: first,it will help to further understand the actual situation of local government debt in China.Second,many current studies are based on the public debt of sovereign countries,and the research level is mainly based on the national perspective.Therefore,the research of this paper is helpful to verify whether the rules of the economic effect of government debt of sovereign countries have similar or different rules at the local level in China and to explore and summarize its own rules and characteristics.Third,the research in this paper will help the government to formulate the scale management and governance policies of local government debt according to local conditions after understanding the impact of local government debt on regional economy,giving full play to the positive effect of local government debt,avoid the state of debt inhibiting growth,and especially guide local government debt to promote the high-quality development of the regional economy.The discussion on the relationship between local government debt and China’s regional economy is of great significance,especially in the context of the current critical economic downward pressure and the widening gap between the growth rate of fiscal expenditure and revenue.The research conclusions of this paper are as follows: first,this paper finds that the local government debt of all provinces in China is expanding significantly,and the main reason for the continuous expansion is institutional factors,namely fiscal decentralization and financial decentralization.Second,in the empirical study,it is found that under the current debt level,local government debt promotes the "quantity" of the regional economy,but inhibits the "speed" of the regional economy.Thirdly,this paper finds that the impact of local government debt on economic growth shows significant regional heterogeneity and debt structure heterogeneity effects.Fourthly,in the study of the threshold effect,it is found that the impact of local government debt on economic growth shows a significant threshold effect,and its threshold value has its characteristics and rules,which is different from the conclusion based on the research at the level of sovereign countries.Fifthly,in the influencing mechanism,this paper finds that local government debt affects regional economic growth through private investment,public investment,and public expenditure,and finds that local government debt has a crowding-out effect on private investment.Finally,this paper empirically finds that although local government debt inhibits the high-quality development of the regional economy,it promotes the coordinated development,green development,and shared development of the regional economy.The research value and innovation points of this paper may be reflected in the following aspects:(1)The paper statistically analyzes the scale and structure of local government debt from a relatively broad perspective and enriches the research content of local government debt,especially the research and explanation of its historical development process,current situation analysis,and expansion causes.This paper comprehensively calculates the data on local government debt from the two dimensions of local government explicit debt and local government implicit debt,which is convenient to understand the real situation of local government debt in each province in China and is also conducive to capturing the impact on economic growth in the empirical research,and to examine the heterogeneous impact of local government explicit debt and implicit debt on economic growth.(2)This paper empirically analyzes the impact of local government debt on local economic growth from different research perspectives such as "quantity" and "speed," different research methods such as linear and nonlinear,different research dimensions such as "debt ratio" and "debt ratio," and different research levels such as "different regions" and "different debt types." From the perspective of "growth," the existing research studies from a single perspective of GDP growth rate.The existing research lacks a comparative study on the impact of local government debt on economic growth in different regions and different debt structures in China.This paper finds that the impact of local government debt on regional economic growth shows significant heterogeneity in different regions and different debt types.(3)This paper improves and enriches the research on the impact mechanism and threshold effect of local government debt on local economic growth,summarizes the threshold law of local government debt itself,and empirically tests the mechanism of local government debt affecting the "quantity" and "speed" of the regional economy and the heterogeneous impact of different mechanisms according to the theoretical basis of macroeconomics and three different mediating effect models.It is found that local government debt promotes the "volume" of the regional economy through public investment and public expenditure,and inhibits the "volume" and "speed" of the regional economy through private investment.(4)This paper supplements and expands the research on the impact of local government debt on the high-quality development of the regional economy from both theoretical and empirical aspects.This paper constructs an evaluation system of the regional economic high-quality development according to multiple dimensions and empirically analyzes which connotations and dimensions of local government debt play a role in high-quality economic development.Combined with China’s national conditions and the actual situation of local development,this paper constructs a multi-dimensional evaluation index system for the high-quality development of the regional economy and further explores the heterogeneous impact of local government debt on different dimensions of high-quality development based on the empirical study of the impact of local government debt on the high-quality development of the regional economy.Although the empirical results show that local government debt inhibits high-quality development,further exploration shows that local government debt promotes the coordinated development,green development,and shared development,indicating that local government debt still plays an important role in the high-quality development of the regional economy.From the perspective of implementing the fiscal security strategy,the 14 th Five-Year Plan proposes to "prudently resolve local government debt".At present,local government debt in China is expanding rapidly and its regional distribution is extremely uneven.The principal risks of local government debt include heavy pressure of interest payment,high debt burden,more prominent debt pressure in the central and western regions,and mutual spillover between fiscal and financial risks.To this end,this paper proposes to "promote the reform of central and local government financial systems","improve local government performance management and assessment systems","promote the reform of financial systems and strengthen financial innovation supervision","establish and improve local government debt management system construction according to local conditions","promote the reform of financial systems and strengthen the supervision of financial innovation","establish and improve local government debt management system construction according to local conditions","promote the reform of financial systems and strengthen the supervision of financial innovation","establish a long-term mechanism to prevent local government debt risks" and "guide local government debt to promote high-quality economic development".