| Because the United States withdrew quantitative easing(QE) policy and the Federal Reserve raise interest rates, global capital flows to the US market. In China, other factors such as the declining expected domestic GDP growth rate also cause the flight of domestic capital. As a consequence, issues of the shortage of domestic capital and the rise in real interest rates arises. Due to these unfavorable factors, Chinese local government debt problems have aroused great attention of all parties. The Budget Law of the People’s Republic of China changed in 2014. One of the most important changes in this law is that the State Council allows the provincial and municipality governments to issue local bonds to finance the construction of infrastructures. The regulations identify the legitimacy of local government debt, enabling the central government and provincial governments to resolve local government debt issues. However, the Budget Law does not allow municipal governments to issue government bonds, while the municipal government debt accounted for nearly 50% of the total size of local government debt in China. How to control local municipal government debt is the key to solve the problem of Chinese local government debt. In this research, the writer try to achieve two objectives: Firstly, to find out which reason among the factors that lead to local government debt is the the reason that affect the prefecture-level city government most. Secondly, to find out the most significant factor affecting municipal government debt by building econometrics models using data of city A, whose economy is driven by the industry located in Midwest of China, as well as to give some advice to the governments of A and other similar cities based on the analytical results.Firstly, the writer collate and summarize related literatures, analyze the current situation of local government debt systematically and comprehensively, and identify the important causes of local municipal debt. After that, the writer analyze the influence factors on the size of the debt of A’s municipal government using econometrics methods. The author use the 2000- 2014 statistical data of city A located in Midwest China to build a Cointegration and vector error correction model and run and Granger causality test afterwards. At last, the author put forward some suggestions to cities that are similar to A on controlling the scale of debt. The results of the research are as follows:To begin with, the prominent factors affecting municipal government are listed as follows: Firstly, local officers lack the sense of responsibility, focusing on personal promotion and short-term economic development, holding the belief that the central government will pay for their debts, which leads to incautious borrowing. Secondly, local government does not have scientific or well-grounded measures for the use of loan.Furthermore, there is a long-term stable relationship among the size of government debt, intergovernmental deficit, the level of urbanization, industrial structure, regional economic level and investment in fixed assets. The Cointegration model reveals that industry structure and regional economic development have a huge impact on local government debt, but influences the size of the debt on different directions. Meanwhile, the level of regional economic and industrial structure are Granger causes of local government debt, illustrating that debt control should be based on these two aspects.To sum up, the dissertation put forward policy recommendations from the central and local governments’ perspectives. The central government should try to change the legislation, match rights and financial power, and strengthen supervision of cadres to establish a scientific evaluation system to start to solve the debt problems of the municipal government. Local government should deepen economic restructuring, promote the development of private capital expenditure regional economic development vigorously to reduce the size of local debt. |
