FISCAL DECENTRALIZATION, RESCUE EXPECTATION AND LOCAL GOVERNMENT DEBT EXPANSION – BASED ON CHINA'S PROVINCIAL PANEL DATA ANALYSIS *

Promoting economic development through debt financing is a universal method adopted by governments all over the world. Debt financing in China's local government has played a positive role in accelerating new-type urbanization, keeping economic growth, improving people's livelihood and advancing social development. However, rapidly expansion of local government debt has led to a sharp rise of risk. These debts with the characteristics of large in scale, low in transparency, diversified in debtors and debt forms, and unsustainable sources of repayment, may have a serious impact on fiscal sustainability and even lead to systemic default risk. This paper sorts out the types and structures of China's local government debt, theoretically analyzes the formation mechanism of local government debt expands, and conducts panel regression by using data from 31 provinces and cities in China from 2010 to 2017, and then empirically studies the impact of fiscal decentralization, rescue expectation and land finance on the scale of local government debt. The results show that after controlling the macroscopic variables such as regional economic development level, financial deepening degree and regional opening degree, the explaining variables have significant positive effects on local government debt scale. Based on this, an "integrated, systematic and coordinated" governance path of local government debt is proposed.