Risk Assessment of Local Government Debt: Evidence from China

Abstract

The risk of local government debt has been a robust indicator of regional economic development and the smooth operation of local government. The promulgation and implementation of the new Budget Law in 2014 also reflect the determination of China to control government debt risk. Based on the DPSIR model, this paper defines the logical relationship among the driving force, pressure, debt status, influence, debt repayment ability, and local government debt risk. Combined with the entropy method, this paper analyzes the debt risk level of 30 provinces, municipalities, and autonomous regions in China from 2013 to 2019. The results show that there are apparent regional differences in the debt risk of local governments in China. The debt risk evaluation of the southwest region is higher than the average level in other regions. Overall, we show a downward and upward trend through further analysis of the internal structure and causes of local government debt risk. We offer implications for countermeasures and suggestions.