HUANG Chunyuan, MAO Jie：Fiscal Condition and Local Debt Scale: New Findings Based on the Perspective of Transfer Payments

Abstract：Fiscal income over expenditure is the direct reason of the local government debt in above theoretical analysis.Because of the lack of data on local government debt and a two-way causal relationship between fiscal condition and local debt scale, the empirical test of above theoretical analysis is deficient.Based on the data of prefecture-level cities in China from 2004 to 2009, to control for the endogeneity between fiscal condition and local debt scale, we use transfer payment as fiscal deficit's instrument variable for the first time and empirically analyze that whether local fiscal gap is the reason of the local debt or not.Our theoretical result shows that the relationship between fiscal condition and local debt scale is contrary to common sense.There is a negative relationship that the bigger the fiscal gap is, the slower the scale expansion of local debt is.This result means that the traditional view which fiscal difficulty of grass-roots government will cause the expansion of local debt is questionable, and there are other reasons for the expansion of local debt.

Key words： Fiscal Profit and Loss    Local Debt Scale    Intergovernmental Transfer Payments

source:Finance & Trade Economics ,No.6,2015