Quantitative Analysis Of Sustainability For Fiscal Risk In China

Fiscal risk is deemed to be the last line of defenses in all of the risk, so it is very important to estimate the state of fiscal risk. At present, the domestic academic estimate the state of fiscal risk , always start from accountancy, such as the ratio of deficit , the degree of dependence in debt , the degree of burden in debt .But after this analysis ,"two high two low"bring on a great debate, we can't explain definitely whether the fiscal risk is high or not .Because the standard for judgment---"Maastricht treaty"is need to deliberated , the treaty is the same with European Economic and Monetary Union ,not all of the world ,so we can't use it to judge in China.In this paper, I follow this idea: theoretical analysis--practice certification -- explanation of the status quo by conclusions. Through the analysis on theory and empirical about the fiscal risk in China, I hope to find whether the police result in finance risk or not definitely.From the above point of view , my paper is divided into five chapters : In the first chapter I introduce the background and aim of this study; Chapter II is the literature; In Chapter III , I make theoretical analysis on Intertemporal Government Budget Constrain(IBC), and introduce the method of how to test IBC ,including unit root test with a structure break and cointegration;Chapter IV,I test the status of finance in China, including the state of public debt, deficit and finance; Chapter V: summarize and advice.Chapter I, I introduce the background and meaning of the study. Since 1988, 70% of capital collected by issuing public debt was used to repay principal and interest .The government might in trouble to endure such exorbitant deficit and enormous debt. Although the study in fiscal risk increasing, there still have no idea about the state of the risk, because of lacking criterions, so most of studies determined in nature, with subjective results. It is urging to describe the finance state with quantitative analysis; this is just the purpose of this paper.Chapter II, I introduced the existing research and methods on fiscal risk from three aspects, firstly I briefly introduce the controversy about risk status; secondly conclude defines of the risk, and then discuss the relationship between risk and sustainability; finally I conclude and evaluate the testing methods.Chapter III, I introduced the framework of demonstration research in fiscal risk, and testing methods. In this paper, I recur to sustainability to weigh the status of risk. If the finance police are conduce to economic growth, and the degree of debt burden sounds stabilization, then deficit and public debt are both sustainability, the government can repay principal and interest at any time. The earliest study of overseas began at 1949, Domar is the first person who introduced Intertemporal Government Budget Constrain, after several decades, IBC have evolved several forms, such as, Present Value Budget Constrain, Transversity conditions, those conditions are much closer to real circumstance, especially the actual interest rate, from assuming a constant, then a stationary series, and now assuming a random variable.When testing IBC, we have two ways, one is unit-root test, and another is cointegration test. When testing the unit-root, considering the situation of China, it was happened some events in finance police, this may be resulted in unstationary, that's means finance police is unsustainability. So, I will use unit-root test including structural break.Chapter IV, I test the status of finance in China, including the state of public debt, deficit and finance; First I use traditional unit root test, then allowing for structural breaks, my empirical findings provide that great invent result in unstationary series, and the breaks happened after 1998, at when the active finance police come into effect, that's means this police result in such exorbitant deficit and enormous debt, get rid of this factor, public debt and deficit are both sustainability in a long way. But the status of finance is"weak sustainable", the government must improve its behavior, draw its rein, or else the government might be com insolvent.Chapter V, I summarize the points of view in this paper, and then I give some advises to public debt, the deficit and the finance status.