Local Government Debt and Regional Competition in China

X. Qu, Zhiwei Xu, Jun-Wen Zhu
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引用次数: 4

Abstract

The GDP tournament among local governments plays a crucial role in supporting China's growth miracle. Investment-driven economic growth has led to a surge in local government debt in the past decade. To understand the relationship between local government debt and regional competition in GDP growth, we build a simple decision model of local governors based on prospect theory. Using a comprehensive data set of prefectural-level government debt, our empirical results confirm the theoretical prediction that regional competition in GDP growth does affect the dynamics of local government debt. The effect presents an asymmetric pattern, in the sense that a local government with GDP growth falling behind its competitors tends to issue debt more aggressively, while the effect is insignificant for local governments with GDP growth ahead of their competitors'. Furthermore, we find that the regulatory policy implemented at the end of 2015 that places a ceiling on local government debt effectively dampens the impact of regional competition on local government debt. However, local government investment remains strongly responsive to the regional GDP growth gap, probably because of alternative financial channels such as land financing. The above finding indicates that the debt regulatory policy cannot largely prevent local governments from implementing a pro-growth strategy induced by regional competition.
中国地方政府债务与区域竞争
地方政府之间的GDP竞赛在支持中国的增长奇迹方面发挥着至关重要的作用。过去10年,投资驱动型经济增长导致地方政府债务激增。为了理解地方政府债务与地区竞争在GDP增长中的关系,我们基于前景理论构建了一个简单的地方政府决策模型。利用地级政府债务的综合数据集,我们的实证结果证实了GDP增长的区域竞争确实影响地方政府债务动态的理论预测。这种效应呈现出一种不对称模式,即GDP增速落后于竞争对手的地方政府往往更积极地发债,而GDP增速高于竞争对手的地方政府的这种效应不显著。此外,我们发现2015年底实施的地方政府债务上限调控政策有效地抑制了区域竞争对地方政府债务的影响。然而,地方政府投资仍对地区GDP增长差距反应强烈,这可能是因为土地融资等其他金融渠道。上述发现表明,债务监管政策不能在很大程度上阻止地方政府实施由区域竞争引发的促增长战略。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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