Sustainability measurement, Causality Aanlysis and Policy for Provincial Government Debt
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| Title | Sustainability measurement, Causality Aanlysis and Policy for Provincial Government Debt
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| Author | Xu Zhandong and Wang Xuebiao |
| Organization | Department of math and quantitative economics, Dongbei university of finance and economics |
| Email | xuzhandong@163.com；wangxb@dufe.edu.cn |
| Key Words | Municipal debt; Debt sustainability; Endogenuos growth model; Revenue/expenditure ratio |
| Abstract | Revenue/expenditure ratio was used to reflect the state of the local government budget surplus. An endogenous growth model with “rolling over debt” constraints was established to analysis sustainability conditions of municipal debt. The results suggest that municipal debt is sustainability provided that it meet three condition at the same time, including fiscal surplus, optimal path and below the maximum debt size .By the sustainable conditions, the un-sustainable degree of municipal debt can be classified into weak unsustainable, strong unsustainable and stronger unsustainable. While the sustainable test of existing research can distinguish between sustainable and unsustainable, can not distinguish the unsustainable level. The empirical research supplied some key results. Firstly, municipal debt of all 31 provinces are not sustainable, in which 19 provinces debt are stronger unsustainable, 13 provinces are strong unsustainable. Secondly, debt unsustainable degree of the eastern provinces are lower than the central and western. The causality analysis of municipal debt unsustainablility show that the important causality of unsustainablity is the output efficiency of government spending. In order to solve municipal debt unsustainability, the three key issue are needed to do. Firstly, to extend the redeem period and take the " rolling over debt " policy can reduce the short-term default risk. Secondly, to reform the property rights and increase local government revenue can ensure the local government budget getting surplus during relatively shorter period. Thirdly, to reform the expenditure structure and cut down the local governments expenditure in the higher output efficiency industry can reduce the overall governments expenditure. |
| Serial Number | WP851 |
| Time | 2015-03-31 |
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