Impact of China’s Provincial Government Debt on Economic Growth and Sustainable Development

Wanping Yang,Peidong Deng,Zhenya Zhang,Luyao Guo,Yajuan Wang

doi:10.3390/su14031474

Wanping Yang, Peidong Deng + Show 3 more

Open Access

https://doi.org/10.3390/su14031474

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Journal: Sustainability	Publication Date: Jan 27, 2022
Citations: 6	License type: CC BY 4.0

Affiliation: Xi'an Jiaotong University, Fudan University

Abstract

Macroeconomic stability is the core concept of sustainable development. However, the coronavirus disease (COVID-19) pandemic has caused government debt problems worldwide. In this context, it is of practical significance to study the impact of government debt on economic growth and fluctuations. Based on panel data of 30 provinces in China from 2012 to 2019, we used the Mann–Kendall method and Kernel Density estimation to analyze the temporal and spatial evolution of China’s provincial government debt ratio and adopted a panel model and HP filtering method to study the impact of provincial government debt on economic growth and fluctuation. Our findings indicate that, during the sample period, China’s provincial government debt promoted economic growth and the regression coefficient (0.024) was significant. From different regional perspectives, the promotion effect of the central region (0.027) is higher than that of the eastern (0.020) and western regions (0.023). There is a nonlinear relationship between China’s provincial government debt and economic growth, showing an inverted “U-shaped” curve. Fluctuations in government debt aggravate economic volatility, with a coefficient of 0.009; tax burden fluctuation and population growth rate aggravate economic changes. In contrast, the optimization of the province’s industrial structure and the improvement of the opening level of provinces slow down economic fluctuations.

Highlights

The coronavirus disease (COVID-19) pandemic has extensively impacted the economy of countries worldwide, leading to prominent government debt problems [1]
According to estimates by the Congressional Budget Office (CBO) of the United States (US), because of the pandemic, the US federal government debt ratio rose to 126% in 2020 and continues to rapidly rise (Date sources: https://www.cbo.gov/publication/57635, Washington, DC, U.S accessed on: 31 August 2021) [2]
The scale of local government debt in China has shown a trend of continuous expansion, which has had a profound impact on macroeconomic stability and fiscal sustainability [3,4,5]

Summary

Introduction

The coronavirus disease (COVID-19) pandemic has extensively impacted the economy of countries worldwide, leading to prominent government debt problems [1]. According to estimates by the Congressional Budget Office (CBO) of the United States (US), because of the pandemic, the US federal government debt ratio rose to 126% in 2020 and continues to rapidly rise (Date sources: https://www.cbo.gov/publication/57635, Washington, DC, U.S accessed on: 31 August 2021) [2]. Bureau of Statistics suggest that China’s government debt balance in 2020 was 46.55 trillion yuan, and that the government debt ratio was 45.82%. As of the end of December 2020, the national local government debt balance was 25.66 trillion yuan—a year-on-year increase of 20.44%—but the issue of sustainability of local government debt is very urgent The local government debt has a positive impact on promoting investment and enhancing the vitality of the local economy [6,7,8]

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Conclusion