The Study on Estimating the Scale of Local Government Debt in China

Abstract

Whether at home or abroad, local debts play an important role in easing the contradiction between supply and demand of funds, and promoting local economic development and other aspects. The measure of the appropriate local debts scale is the basis to control local debts risks, and it is an important issue in the study of local debts. Based on the analysis on the influence factors of local debts scale, we build a panel data model of moderate local debts scale, calculate 30 provinces and cities where local debts are issued by the moderate scale, and provide basic methods for the issuance scale of local debts. Index Terms - local debts, appropriate scale, panel data model Local government bonds(hereinafter called local debts) is mainly refer to a financing form of raising funds, which makes the local government uses credit tool in order to meet the needs of the development of the local economic and social public welfare under the shortage of regular revenues, in accordance with the relevant legal provisions. At present, 37 countries allow to issue local debts of 53 major countries in the world. China's local debts is a very tortuous course. The future of local debts will be according to the following pattern transformation, namely central government on behalf→self-issuing→issuing autonomously. (1) Only moderately issuing local debts can governments control and reduce the local debts risks and the local financial crisis from the source, so that the local debts really plays a role to promote local economic development and social stability. Determining the appropriate scale of government bonds has become an important problem to research. To measure the debt scale is the foundation of moderately issuing. Research on government debt scale of foreign scholars: government debt issuance should control the scale(2-5). Influence factors of the government debt issuance scale(2-5) mainly include GDP, fiscal revenue, income distribution, deposit, urbanization rate, population flow, interest rate etc. Quantitative research methods of China's local debts issuance scale are: (1) KMV model. Scholars such as Wang Gang(6) put forward the concept of the default risk of municipal bonds on the basis of American municipal bonds, and build the credit risk model for municipal bonds by using KMV model. He calculates the debt scale of different default probability by taking Beijing and Shanghai as examples. (2) Theoretical inference. Scholars such as Wang Yu(7) conclude that: in the rational expectations equilibrium model, when the control of the government can not improve the cash flow in the future, investors will refuse to buy the bonds. Therefore, a small risk of insolvency will lead to a great risk of immobilization. (3) Regression model. Scholars such as Cheng Zhenhuang (8) taking