Research On Local Government Debt Security Scale Based On Panel Data Model

The European debt crisis caused the local government debt to develop rapidly.The local government debt has become a public concern on countries and regions.Problems of the local government debt have become increasingly apparent. A largenumber of the government debt will affect the local financial security and even thecountry’s financial security. The issue of local government debt’s size deserves anin-depth research. Measuring the reasonable scale of the local government debt for therelevant departments may help to prevent local financial risk and safeguard thenational financial security. Therefore, the security scale measuring study of the localgovernment debt helps to promote the healthy and orderly development of economy.This paper is focused on studying the secure size measuring of the localgovernment debt. The largest scale of the local government debt is that it will not leadto debt risk. The paper predicts the local fiscal revenue through the panel datamodelby studying the country’s31provinces. According to the previous studies, thispaper select40%of total revenue as guaranteed fiscal revenue. This paper forecastsrevenue of2012by areas of deposits, expenditure, GDP, tax revenues, personalincome tax, fixed asset investment. Then it estimates guaranteed revenue. After that itcalculates the local fiscal revenue’s growth and standard deviation, and substitutesthem into the KMV model, to estimate the secure size of the local government debt.Conclusions of the study are three points: first, the prediction data of localgovernment revenue compared the real data is very accurate, and the trend isconsistent. Second, the secure size of the local government debt under risk control isdifferent among regions of the country.It is very obvious that the secure size of thecentral region lags far behind the eastern region, but it is significantly more than thewestern region. The central government’s macro-control should focus on narrowingthe gap in economic development between regions. Third, the local governmentshould strictly control our debt’s increment to minimize the local government debt’sstock. It requires our country to strengthen the central management and protectinglegislation: the introduction of credit rating agencies, to actively strive to improve therelevant accounting system, to reform the performance evaluation mechanism by thegovernment so that the various departments will cut costs. The innovation of this paper is, on the content, relevant literature known justexamine the characteristics of local government debt’s default risk, the perspective oflocal government debt on the safety scale’s measurement is less, lacking in ourcountry’s31provinces’ research on the size of each local government debt’s securitymeasure. This paper studies the secure size of local government debt comprehensivelyand systematically throughout the country. In terms of research methods, relevantliterature in predicting the local fiscal revenue rarely used panel data model. Evenwith a panel data analysis method, the selection of variable also has certainone-sidedness. To predict local fiscal revenue, the panel data model selects a varietyof variables in this paper, areas of deposits, expenditure, GDP, tax revenues, personalincome tax, fixed asset investment. Compare the predicted and real local fiscalrevenue，verify the accuracy of the forecasts, compare the difference measurement ofthe secure size of local government debt by the expected and actual revenue.There are inadequacies of this article. The scope of application of KMV model islimited, it generally applies only to assess the credit risk of listed companies, it isdifficult to assess the government department, and result may not be accurate. KMVmodel provided in this article assumes the local fiscal revenue lognormal distribution,but in reality, government revenue is not necessarily a logarithmic normal distribution.In this paper, to calculate the secure size of the local government debt with KMVmodel is just an attempt, using a simple calculation method, other factors and relatedparameters are not taken into account in the model. There are many issues to beconsidered. A comprehensive solution can make it obtainmore accurate results.Based on the results of numerous studies from domestic and abroad, this articlechoose integrated research methods to measure the secure scale of China’s localgovernment debt reasonably. First, this paper reviews the development process oflocal government debt’s studies from domestic and foreign. Then elaborated on thebasis of the relevant theoretical analysis of local government debt, from the meaningof local government debt and the major categories, the concept of local governmentdebt risk, the defining of local government debt’s secure scale, the amount analysis oflocal government debt, characteristics of local government debt’s structure and scale,the need for determining local government debt’s secure scale.