| Properly dealing with local government implicit debt and preventing and resolving major debt risks is an important task for China’s national governance in the current and future periods.Compared with other countries,China’s local government implicit debt has its unique historical origins and institutional characteristics,and the market failure and lack of government under the limitations of the old debt system are the fundamental causes of its continued expansion.Given this,in order to address the risk of local government implicit debt,and with the new Budget Law promulgated in 2014 as the general outline,the Chinese government has undertaken a bold reform of the debt system in the new era,and in the course of continuous exploration,has established a debt governance system that takes into account both the effective market and the active government.As far as the effective market is concerned,the top-down principle of "no bailout,no guarantee" has been adopted to break the "rigid faith" of the financial market in the implicit debts of local governments,fully mobilize the subjective initiative of the financial market in identifying risks,and completely change the supply logic of the financial market to the implicit debts of local governments.In the case of the government in power,it should be clear that the supply logic of the financial market for local government implicit debt resources has been changed,and the marketization of implicit debt should be promoted.As far as the active government is concerned,based on a clear division of debt responsibilities,the debt management model,which is mainly based on "blocking",should be overturned,and the financing channels for local governments’ explicit debt should be opened up by "turning blocking into unblocking",and the local government bond system should be continuously improved while strengthening In addition to improving the local government bond system,we will also strengthen the prevention and control of implicit debts of local governments and promote the manifestation of implicit debts.So,can the above-mentioned debt governance logic based on the coupling of the effective market and active government effectively resolve the risk of implicit local government debt? And can it play the expected role in mobilizing the financial market and local governments in the management of implicit debts? To answer these two questions,this paper has done the following.Firstly,this paper follows the clues of the changes in China’s fiscal system,details the development of local government implicit debt,defines the boundary and connotation of local government implicit debt,and based on this,analyses the spatial and temporal characteristics of local government implicit debt in four dimensions:financing platform,debt scale,financing cost and debt structure.The study found that after the introduction of the new Budget Law,with the continuous promotion of various debt management policies,the incremental risk of local governments’ implicit debt is gradually decreasing,but there is still a high-risk pressure on the stock.Specifically,at the level of financing platforms,the number of local government financing platforms registered in the new era has dropped significantly and the number of cancellations has risen rapidly.At the debt scale level,although the scale of local governments’ implicit debt has increased,the growth rate of debt ratio is gradually converging.At the level of financing cost,the marketability of the financing cost of implicit debt has increased significantly.In terms of debt structure,there is a clear trend of short-term maturity structure of implicit debt and a significant trend of rationalisation of bond rating structure.Evidence from the above-mentioned financing platforms,debt scale,financing costs and debt structure in multiple dimensions shows that some substantial progress has been made in the resolution of local governments’ implicit debt risks under the debt governance system in the new era.Secondly,this paper systematically assesses the impact of the tax reduction policy on local government implicit debt in the context of the implementation of the largescale VAT tax reduction policy during 2017-2019,and uses this perspective to try to answer the question of "whether the debt governance logic based on effective markets and active governments in the new era can effectively address the risk of local government implicit debt and how sustainable it is The question of " can debt governance logic based on effective market and active government be effective in addressing the risk of local government implicit debt in the new era and how sustainable is it? Based on manually collected and collated local government budget data,this paper makes use of the budget management system to cleverly construct a VAT dependency(budget number)variable and develop an identification strategy based on this variable to assess the impact of VAT rate reduction events on local governments’ implicit debt.The findings show that the incremental risk of local government implicit debt does not increase significantly even in the face of a large tax cut,suggesting that the current logic of local government implicit debt governance based on the coupling of efficient markets and active government is effective and sustainable.The reason for this is related to the shift in the supply and demand behaviour of financial markets and local governments for implicit debt after the introduction of the new Budget Law(2014).In the new era,financial markets have become more sensitive to the risks of local governments’ implicit debts,and taxation has played the role of "collateral" in the issuance of local governments’ implicit debts,leading to a reduction in the supply of financial resources for implicit debts by financial markets.At the same time,the rising cost of debt financing for local governments under debt governance has increased their preference for other non-debt strategies to cope with fiscal austerity and reduced demand for implicit debt.Thirdly,this paper digs deeper into the issue of the effectiveness of implicit debt governance in the new era from the efficient market dimension.Specifically,starting from credit,the basis of debt financing,this paper uses the objective fact that there are differences in the mechanism of social credit’s influence on local government’s implicit debt under different "rigid beliefs" scenarios to design an identification strategy,by studying the influence of social credit on local government’s implicit debt.Through examining the impact of social credit on local governments’ implicit debts and comparing whether there are differences in the impact of social credit on local governments’ implicit debts before and after the 2014 amendment of the Budget Law,this paper investigates whether the "debt governance path based on an effective market perspective can play the expected role in breaking the " rigid faith " of the financial market in local governments’ implicit debts and promoting local governments’ implicit debts." The study finds that the 2014 Budget Law has not been implemented.The study found that after the revision of the Budget Law in 2014,financial markets began to become sensitive to social credit signals when investing in local government implicit debt,and the negative impact of the decline in social credit on local government implicit debt issuance was magnified.However,as there were no substantial defaults for a long period since the beginning of the new Budget Law,the financial market showed more of a wait-and-see attitude,and local governments with strong motives for issuing debt and poor social credit could still attract investment from financial institutions(investors)by raising financing costs,and the phenomenon of local governments borrowing implicit debt in violation of the law still existed.It was not until the first default on urban investment bonds in 2017 that the financial market’s "rigid faith" in local government implicit debt was truly shaken,raising the marketability of financing platforms and enhancing the market’s restraint on local government implicit debt issuance.Finally,this paper focuses on the perspective of the active government in an attempt to investigate whether the debt management path based on the perspective of the active government can achieve the desired effect and whether the governmentdimensioned implicit debt management path of ’repairing the open channels and blocking the dark ones’ can effectively curb the implicit debt financing needs of local governments and promote the process of making the implicit debt of local governments visible.In this paper,we will conduct a preliminary analysis of the issue that "the process of making the implicit debts of local governments visible".Specifically,based on the idea of "repairing the open channels and blocking the dark ones" after the revision of the Budget Law in 2014,this paper uses the "explicit debt space" under the current strict debt limit management system based on the explicit debt data collected manually at the prefectural level and the implicit debt data calibrated by the machine learning method.Using the exogenous variable of "explicit debt space" under the current strict debt limit management system,a natural experiment is constructed to assess the causal effect of explicit local government debt financing on implicit debt using the double difference approach(DID).The results show that explicit debt financing by local governments significantly contributes to the increase in the scale and cost of implicit debt financing,and that the current debt limit management system effectively curbs the growth of implicit debt while restraining the issuance of explicit debt.Compared to general debt,the marginal impact of special debt on local governments’ implicit debt is significantly stronger.In-depth studies have found that explicit debt financing mainly affects implicit local government debt financing through the "multiplier effect",while the "substitution effect" and "guarantee effect" do not play the expected role.This shows that although the management of explicit debt limits can be transmitted to the implicit debt level to control the risk of implicit debt,the implementation of the "open channel" approach to debt management at the local government level has not had the expected effect of "blocking the dark channel".Therefore,there is still a need to continue to improve the existing local government bond system to effectively promote the manifestation of implicit debt.The research in this paper not only helps to deepen the understanding of the effectiveness of the debt governance path in the new era and the risk of implicit debt of local governments at the current stage,but also provides ideas and references for the country to improve its fiscal system and formulate more effective and complete complementary policies for debt governance in the next step.The findings of this paper suggest that the model of local government implicit debt management based on the coupling of effective market and active government in the new era has begun to bear fruit,but there is still much room for adjustment and improvement in the policy details and implementation process.In the future,consideration can be given to continuing to improve the existing debt governance system from the perspective of further stimulating the initiative of both the market and the government.First of all,we should strengthen the collection of information on implicit debts,the division of responsibilities and the disclosure of information,and establish a top-down system of disclosure of information on implicit debts of local governments,and on this basis,properly dispose of implicit debts of local governments to prevent the "risk of disposal".Secondly,based on promoting the implementation of an accountability system for implicit debts,a sound local government bond system should be established to improve the efficiency of the use of debt funds by improving the existing bond quota allocation system,to promote the steady release of implicit debt risks of local governments while giving full play to the role of debt instruments.Finally,sustainable fiscal policy support should be provided for the prevention and resolution of local government implicit debts.The effectiveness of the current management of implicit debt relies on the stability of local government fiscal revenues and expenditures,but it remains to be seen whether local fiscal stability is sustainable under the multiple shocks of economic downturn,tax cuts and fee reductions,and the new crown epidemic.Therefore,while preventing and resolving the implicit debts of local governments,it is also necessary to take into account the sustainability of local finances,and improving the support of other "open source and cost-cutting" fiscal policies is the key to the sustainability of the debt management model in the new era. |
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