Research On The Impact Of Local Government Competition And Financial Decentralization On Local Debt

The continuous expansion of local government debt has attracted more and more attention from all parties in recent years,and the cleaning and rectification of local government debt will also be an important issue that the party and the government need to face in the next stage.Appropriate borrowing to develop the economy is reasonable and objective for local governments.Especially in the central and western regions,local government borrowing appropriately can improve local infrastructure construction,create a good business environment,promote local industrial upgrading,and improve people’s living standards.However,excessive borrowing will bring systemic fiscal and financial risks.Once the butterfly effect occurs,it will be spread across the country,which will have a great negative impact on my country’s economic development and industrial upgrading under the new normal.In order to control the continuous expansion of local government debt and control the scale of local government debt;in order to ensure the steady development of my country’s economy and the stability of the fiscal and financial fields,it is necessary to clarify the factors that cause the continuous expansion of my country’s local government debt.This article uses local tax competition to represent local government competition.The number of employees in local financial institutions accounts for the number of financial institutions in the region to indicate financial implicit decentralization.At the same time,the loan balance of local financial institutions accounts for the loan balance of national financial institutions to indicate financial dominance.Centralization,starting from the two aspects of local government competition and financial decentralization,explore the impact of these two factors on the expansion of local debt,and add their interaction terms on the basis of the benchmark regression model to further explore the impact on local debt.Based on the analysis of the data of 30 provinces across the country from 2005 to 2017,this paper concludes that local government competition is the active factor that causes the continuous expansion of local debt.In order for local government officials to gain an advantage in the promotion competition,they need economic growth and use investment to drive it.Economic growth is more practical and feasible.However,due to the restrictions of the "Budget Law" and the central government’s regulatory budget,fiscal revenue cannot be used as a source of funds for large-scale investment by local governments.Therefore,it will use administrative power to intervene in the flow of funds of local financial institutions to facilitate their own financing.,And then achieve the purpose of investment,which caused the continued expansion of local government debt.The empirical results show that local government competition can promote the growth of local government debt.Similarly,the role of implicit financial decentralization on the growth of local government debt cannot be ignored.It is a mechanism for local government financing and debt realization;financial explicit centralization can suppress local government debt The growth of financial institutions and the strengthening of explicit financial centralization can reduce the impact of local governments on financial institutions,thereby reducing local government debt.The interaction terms of local government competition and financial implicit decentralization show that financial implicit decentralization can accelerate the impact of local government competition on government debt,while financial explicit centralization can inhibit the impact of local government competition on local government debt.Therefore,on the basis of the above research,relevant suggestions are put forward.It is necessary to change the evaluation mechanism for local government officials.Local officials should not be evaluated solely by economic indicators,so that local officials’willingness to borrow money to develop the economy should be reduced.At the same time,strict supervision and regulation of locality should be made.Financial institutions should appropriately raise their barriers to entry,and reduce the intervention of local governments in financial institutions,so that financial institutions can truly serve the development of the local real economy.