The Research Of Local Government Investment And Local Government Debt

The economy of China has kept growing rapidly since the Reform and Opening-up, in which the local government investment plays an important role. However, in the process of promoting economic growth, more and more problems begin to show, such as large waste of resources, low efficiency of investment, air pollution, surplus productivity, government debt increases, unreasonable economic structure and so on. Among these problems, the excessive government debt is at the greatest risk. The National Government Debt Audit Report2013released by the Audit Office shows that local government is overloaded because of the excessive debt. Many local governments have to repay the old debts through issuing new debts, which accumulates greater risk to the government. Scholars in the past usually ignored the importance of investment when studying the reasons and measures of the debts, which is the original engine of government debts. Instead, they only focused on the government debt itself. As a matter of fact, there are mutual influences among local government investment, debts and the local economy:The government investment can stimulate local economic growth, while it may also increase government debts; the rise of debts will therefore lead to less future investment and more future credit risks. Therefore, we should take debts and investment into consideration together to study how they act on local economy. The reasons of government impulsion in investing, low efficiency and high debts, the measures of adjusting investment structure, resolving debt risks will be the priorities of this thesis.There are five chapters in this paper. Chapter1gives a brief introduction about the background, significance, methods, innovations and defects of this paper. Chapter2makes a review of the relevant theory and literature. Chapter3is the theory analysis and puts forward to solve four questions:(1) What is deepest reasons to the large government investment?(2) What are the characteristics of these investments?(3) How does them affect local economy?(4) Is impulsion the primary cause of government debts? On the basis of these analyses, it puts forward a Competition Game Model among governments. Chapter4gives an empirical test of this study. Chapter5proposes some suggestions in three aspects according to the overall research. The research conclusions show that financial and tax incentives, political promotion, official corruptions are three main motivative factors in influencing government investment. In the function of the three factors, government officials have great impulsion to invest. However, government finance is pretty limited so that they have to borrow money to invest. The amount of government debt will exceed the maximum safe value when the risk restraint mechanism isn’t established. To solve the problems of blind government investment, low efficiency and high debts, we should make measures in the three aspects as mentioned above.