Research On The Sustainability Of Local Government Debt In China Based On Fiscal Reaction Function

Under the dual background of the continuous slowdown in economic growth and the proactive fiscal policy,the sustainable development of local government debt has been severely challenged.From a national perspective,China's current government debt risk is not too great,but local finances are facing greater debt pressure.The main reason is that since the reform of the tax-sharing system,the responsibility of the local government's power and expenditure is far greater than that of the central government,and the debt structure of the local government is also more prominent.Especially since 2014,the scale of local government debt has continued to expand,which has attracted great attention from the State Council.After the standardized management of debt,debt-raising chaos still exists.Debt risk is currently an important part of preventing and resolving major financial risks.Based on this background,this article firstly sorts out the relevant research at home and abroad,on this basis,defines the concept of government debt,and clarifies that the research object and scope of this article are the debts that the local government is responsible for repaying.Secondly,it sorts out the development context of local government debt,and deeply analyzes the current status of local government debt from three aspects:scale,structure,and risk.Thirdly,the specific factors that affect the sustainability of debt are studied from the two dimensions of fiscal revenue and expenditure.Then,using the debt data of 31 provinces and cities across the country from 2010 to 2019 as a sample,the fiscal reaction function is used to determine the basic factors affecting the local government.Analyze the relevant factors of the primary surplus ratio,and introduce the concept of "fiscal fatigue" to fit a non-linear fiscal reaction function to measure the upper limit of the theoretical debt ratio in each region,thereby obtaining the current remaining borrowing space in each region.Finally,based on the previous research conclusions,corresponding proposals are given to enhance the sustainability of local government debt.The results of the study show that there is a non-linear relationship between the basic primary surplus ratio of local government and the lagging debt ratio.When the debt ratio exceeds the upper limit,the local government debt is unsustainable due to limited fiscal adjustment capabilities.The economic growth rate always has a positive effect on the primary surplus ratio;while the fiscal expenditure gap has a negative effect on the primary surplus of local governments.At present,household savings rate in China is generally high,which is not beneficial to the development of the regional economy.We should consider releasing excess reserve assets to improve the sustainability of local government debt.Through the estimation of the fiscal reaction function,the current theoretical upper limit of the debt ratio of local government debt in China is(65.63%,89.15%),and debt sustainability in most regions is relatively strong.Tibet,Fujian,Beijing,Guangdong,and Shanghai rank in the top five sustainable debts.Except for Tibet,which is supported by the central government,most of the provinces with high debt sustainability are concentrated in eastern China.However,Gansu,Inner Mongolia,Ningxia,Qinghai and Tianjin are weak in debt sustainability.Qinghai's debt ratio has exceeded the maximum theoretical value and is in a state of unsustainable debt.