Abstract
In both the theoretical and empirical levels, both at home and abroad, the research of the relativity between government debt and economic growth is still inconclusive. Combined with the practical situation of China, this article takes 31 provinces of our country from 1995 to 2014 and 18 (2005, 2013, rejecting) local government debt and economic growth data as samples. First, we conduct unit root test on two variables DEBT and GDP to ensure that data is stationary, and then, on this basis of unit root test, we conduct cointegration test to determine whether there is a long-term cointegration relationship between DEBT and GDP. Finally, on the basis of the first two steps, we conduct Granger causality test on DEBT and GDP. The results show that the local government debt and economic growth in China is the second order sequences that are of single integer. And there may not exist long-term cointegration relationship between DEBT and GDP. In the short term, the economic growth of local government is the Granger cause of local government debt, but the local government debt is not a Granger cause of economic growth of local government. In the medium term, the economic growth of local government is still the Granger cause of local government debt and its performance is more significant. However, local government debt is not the Granger cause of local government economic growth, but it is weaker than the short-term. In the long term, economic growth and government debt of local government exit Reciprocal causation relationship. According to 18 years real data of 31 provinces in China, we design empirical scheme and conduct Granger causality test in using econometric software Eviews 8. This is the possible innovation of this article.
Highlights
Local government debt is not the Granger cause of local government economic growth, but it is weaker than the short-term
Based on the objective fact of investment lag, this paper proposes the following hypothesis: H2: In the short-term, due to the obvious lag of investment, local government debt does not constitute the cause of local government economic growth; in the medium term, the effect of investment is gradually emerging but may still not be enough to constitute the cause of local government economic growth; In the long run, the effect of investment is undoubted, and local government debt constitutes the cause of local government economic growth
3) In the medium term, local government economic growth is still the Granger cause of local government debt and its performance is more significant, but local government debt is not the Granger reason for local government economic growth, but it is weaker than the short-term
Summary
In the 10 years before the reform and opening-up policy, the Chinese government had neither internal debt nor external debt. With the reform and opening-up policy in 1978, the central government continued to run deficits for the two years. Since the reform and opening-up policy, especially since China established the socialist market economic system in 1992, the market economy has developed rapidly, and urbanization and industrialization have continued to advance. The Chinese economy has ended the “crazy growth” of reform and open for more than 30 years, and the downward trend has gradually emerged. This is the first time legally allowed local governments to conditionally borrow. This move has once again brought the issue of government debt to the public. The new “Budget Law” has expanded the creditor’s rights of local governments, which will certainly have a certain impact on the economic development of local governments
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