Research On The Influence Of Interest Payment On Local Finance Sustainability

The Third Plenary Session of the 18 th CPC Central Committee stated that "finance is the foundation and an important pillar of national governance".A sound and sustainable fiscal state provides important support for accelerating the reform of the fiscal and taxation systems and promoting the modernization of the national governance system and capacity.After economic development has entered the new normal,local finance has been faced with enormous pressure from the superimposed effect of revenue reduction and expenditure increase.Especially after 2020,in order to overcome the superimposed impact of the epidemic and external economic uncertainties,China has implemented more proactive fiscal policies,continuously increasing the scale of government bond issuance,and using the space of rising debt to exchange for the space of implementing proactive fiscal policies.The rapid growth of government debt has raised concerns about the sustainability of local finance.Therefore,based on the following reasons,this paper chooses to explore the sustainable issue of local finance from the perspective of general bond interest payments in the general public budget.First,in the context of increasing attention to fiscal sustainability,the rigidity of debt interest payments has become an important factor affecting the sustainability of local finance.On the one hand,our country "budget law" and related documents clearly stipulate that local government can only raise debt through the way of issuing government bonds,and bond interest can not be repaid through borrowing new debt,interest payment rigid strong;On the other hand,due to the "ratchet effect" of fiscal expenditure,rigid interest payment expenditure is more likely to affect the structure of fiscal expenditure through resource "crowding out",and have a negative impact on the growth capacity of fiscal revenue through the intermediary effect,which further breaks the balance of fiscal revenue and expenditure and may lead to the unsustainable of local finance.Second,the particularity of local government general bond interest payment and the rapid growth of absolute scale and relative scale can not be ignored.Compared with the huge amount of special bonds,the project corresponding to the general bonds has almost no income or the project income can hardly cover the principal and interest of the bonds.The repayment pressure basically comes from the local general public budget revenue,and the current scale of general bond interest payment and its proportion in the general public budget revenue grow rapidly,with an average annual growth rate of more than 35% from2015 to 2020.It is urgent to pay attention to the influence of interest payment on the financial sustainability of local government general bonds.Based on the research perspective selected in this paper,the structure of this paper is as follows: The first chapter clarifies the reasons for the topic selection and the significance of the research from the research background,and sorts out relevant literature from the two aspects of local government debt and local financial sustainability,clarifies the research content and research methods of this paper,and summarizes the innovations and shortcomings that need to be improved.The second chapter defines the relevant concepts involved in this paper in detail,and determines that the main research objects of this paper are the general bond interest payment and local finance sustainability,and then lays the theoretical foundation for this paper from the theory of fiscal decentralization and government debt,fiscal expenditure and government function,and financial sustainability.And complete the general bond interest payment to local finance sustainable mechanism analysis.In this paper,it is considered that the influence of general bond interest payment on financial sustainability is complicated.In order to clearly consider the actual effect,this paper will consider its promoting and inhibiting effects on local fiscal sustainability from three stages of the change of general bond interest payment scale,that is,existing without interest payment,existing beginning interest payment and existing principal and interest payment.Chapters 3 and 4 describe the characteristic fact of general bond payment in our country and measure the local finance sustainability.They expatiate the developing process of general bond payment and interest payment in our country.Moreover,they establish the local finance sustainability index by entropy power method to quantify the local finance sustainability.The fifth chapter is the empirical analysis part.Based on the panel data of provincial administrative regions from 2015 to 2020,using the measurement method of fixed effect model,the empirical research is conducted from the national and regional levels,and the causes of regional heterogeneity are analyzed and verified.The sixth chapter puts forward the corresponding policy suggestions according to the conclusions of this paper.Based on the above research,this paper draws the following conclusions: First,from the score of the constructed financial sustainability index,the overall financial sustainability of Chinese local governments from 2015 to 2020 still presents a funnel shape of high in the east and low in the west,and the financial sustainability of more than two thirds of provinces shows a trend of decreasing or first rising over time and then decreasing.Secondly,there is a significant "inverted U-shaped" relationship between general bond interest payment and local fiscal sustainability.The influence of general bond interest payment on local fiscal sustainability presents a stage effect of first promotion and then inhibition with the change of expenditure scale,and this inverted U-shaped influence relationship has significant regional differences.Regional economic development level,gap of financial revenue and expenditure and industrial structure are the important reasons for the formation of regional heterogeneity.