Moody has recently downgraded China's sovereign debt, which's Moody's first downgrade for the country since 1989. The objective of this study is to get an insight into the local and regional government debt in China, analyze the key factors, and evaluate the economic risks. Based on the published data since 1996, the granger causality test is performed to find out the relationship between local government debt level, the fiscal income, GDP growth rate and CPI. Some major findings are: i) local government debt is accumulated through more spending on economic development and less funding obtained from the revenue sharing scheme between governments. ii) fiscal income and GDP growth rate have positive impact on the increase of local government debt. iii) CPI increase shows negative impact on the local government debt. It's projected that in the coming years, slower growth and less income with a stable CPI could slow down debt accumulation. The Chinese government should monitor the risk factors closely and use risk mitigation tools to avoid a hard landing.
Fiscal crisis can cause serious damage to the economy. Remarkably, there is limited study about when and how it occurs. With the social and economic data of more than 180 countries from 1970 to 2015, this paper constructs a fiscal crisis risk index system to explore the relationships between the crises and the indicators such as GDP growth rate, inflation rate, FDI, and foreign debt interests. Predictive analysis is performed based on the time series model of deep neural network to shed some light on policies and economic dynamics around the crises. We find that besides the inflation, fiscal crises in advanced economies are closely related to the net outflows of FDI and GDP p.c. while in developing countries the GDP growth rate and the net inflows of FDI are the key factors. Low-income developing countries are the heavy-hit targets with the net inflows of FDI, debt structure and interests as main contributors.
China's national audit office reported huge debt accumulated at all levels of local governments in recent years. This paper aims to explain the factors contributing to the local government debt in China with empirical study on the economic development data. The relationship of government debt and economic ratios is examined with the auto regressive linear equation constructed between the local government debt, fiscal income, GDP growth rate and CPI. Granger causality test is performed to find the granger cause of local government debt from previous year’s data. From the analysis, the risk of local government debt is evaluated from the global settings. Policy implications and suggestions are presented at the end.
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