Study On The Soft Budget Constraints And The Alienation Of Local Government Investment

During the transition that from the centralized planned economy to a decentralized market economy, the local government which has a relatively independent economic interests, has become the actor of promoting China's economic growth and social investment. In the context of implementing proactive fiscal policy, the local government made urban construction to expend the level of investment in the area under the jurisdiction, and promoted the growth of local economic and employment. Especially in the face of the global economic crisis, the local government investment played an important role once again. However, the existence of soft budget constraint made many local governments investment enthusiasm continue to rise,which lead to alienation of investment, such as repeated investment and the completion of the projects regardless of cost. The result lead that local government investment was low-efficiency, and it did not only pull private investment effectively, but also caused a serious waste of social resources. Therefore, it is need to conduct further analysis on local government investment at this stage,in order to gradually harden budget constraints and standardize local government investment.This thesis analyzes the local government investment from the perspective of the soft budget constraint; with the theory of the soft budget constraint and local government investment, viewing the Third Plenum in 1978 as a demarcation point, this thesis attempts to analyze the institutional characteristics and circumstances of local governments in this two stages, and summarizes the performance and characteristics of investment behavior alienation in every stage. It dissects the institutional reasons of the alienation of our local government investment behavior, applies for game theory to research the motives of various actors, and finally proposes the policies of hardening budget constraint and standardizing local government investment.According to the analysis of the objective institutional environment and subjective motives, this thesis reflects the relations between local government and the central government, local government and all the stakeholders under its jurisdiction. It proposes that soft budget constraint results not directly from fiscal decentralization institution itself but from imperfect supporting system leading to the emergence of opportunism for local governments. Therefore, we must take measures such as change local government functions, speed up the construction of the current financial organization's relating systems, strengthen the budget constraint's mechanism and establish a scientific performance evaluation system and monitoring system, so as to provide a favorable investment environment for the local governments and to standardize local government investment gradually.