Study On The Threshold Effect Of China's Local Government Debt On Economic Growth

Counties as units can be well manged and then the nation will become rich and prosperous.Since the third Plenary Session of the 16 th National Congress of the Communist Party of China proposed to "strengthen the county economy",the central government has paid high attention to the development of the county economy.However,due to the imperfect county market system,lack of production factors,county-level economic development is mainly supported by local finance capital,and county governments with relatively weak financial strength often develop county economic growth by increasing local government debt.Nowadays,local governments are faced with difficult problems such as changing local economic development method.However,China's county-level government debt accounts for a relatively high proportion.Can county-level government's large amount of debt play a role in promoting the county economy? How long can this growth method last? Enhancing the effectiveness of county-level government debt and defusing the hidden debt risks of local government debts are of great significance.This paper mainly studies the threshold effect of local government debt in Jiangsu Province on county economic growth,and is mainly based on the form of urban investment debt.First,review the development process and causes of local government debt in China,and then analyze the nonlinear relationship between local government debt and economic growth theoretically.Based on the panel data of 328 counties in Jiangsu Province from 2011 to 2017,this paper introduces the relationship between local government debts and county economic growth in view of traditional nonequilibrium panel fixed-effect model.And then,the paper estimated the debt threshold due to Hansen's non-dynamic threshold panel regression model.Many factors affect economic growth,this paper adds three representative threshold variables to analyze the heterogeneity of the debt threshold based on the development process and the analysis of the theoretical derivation section.Due to the endogenous problems of local government debts,this paper introduces instrumental variables to test;by introducing the cross-term of the threshold model and using the GMM estimation method,the robustness test of the aforementioned regression results is conducted.As the downward pressure on China's economy continues to increase,and local governments are facing the problems of slowing fiscal revenue growth and rigid growth of fiscal expenditure.The traditional local government economic growth method in China that uses government debt to promote economic growth is unsustainable.The supervision of county-level local government debt should confirm the threshold of local government debt to control the scale of local government debt reasonably,and then effectively leverage local government financing,play a leading role of local government financing,and use multiple channels to resolve hidden debt risks at the county level so as to promote high-quality growth of the county economy in China.