Local Government Debt Financing - Mode Choice And Sustainability Analysis

In recent years, more and more people focus on the issue of local government debt. From the perspective of financing, local government debt is a source of income that based on the credit of local government, aiming at making up for the lack ofgovernment fund. Since China is in a high speed development period, the demand for funds to construct continues to increase. It is inevitable for local government to raise funds. And this action of local government also fits for the theory of public goods and fiscal decentralization. Now the scale of the local government debt is increasing rapidly and the risk of the debt becomes more and more obvious. It is a pressing issue to choose an efficient way to raise funds and control the risk of the debt.This paper gave a review of the research on the issue of local government debt, then focused on the current situation of local government debt in China. It mainly analyzed the reason of the forming of the debt and the necessity to raise funds. Then by comparing four types of financing, it pointed out that it was the time for local government to issue bonds. In addition, this paper also told about the risks of local government from four aspects:the debt capital flows, the scale of the debt, the economic strength and institutional factor. At last, learning from the experience of other countries, this paper gave some advice of how to control the risk of local government debt.