The Procyclicality of the Local Government Debt Financing and Its Theoretical Explanation
- SI Haiping, LIU Xiaoge & WEI Jian
SI Haiping（Shandong University，250100）
LIU Xiaoge（Peking University，100871）
WEI Jian（Shandong University，250100）
This paper aims to examine the dynamic characteristics of local government debt in the economic cycle and to explore the reasons behind such characteristics. Using the provincial panel data from 2002 to 2014 and the system GMM，the study found that the accumulation rate of local debt showed a tendency for procyclicality. With each additional percentage of the output gap, the implicit debt growth rate increased by 5.92% and 3.97% respectively during the boom and recession. Even if the market financing environment is under control，this feature is still evident. Further empirical analysis finds that officials' promotion pressure aggravates the pro-cyclical nature of local debt. Local debt is not only an important financing tool for local governments to ease capital constraints and stimulate economic growth，but also likely threatens economic stability because of its risk attributes. This paper argues that local governments have different prioritized goals in different stages of the economic cycle might be an important reason for the pro-cyclical characteristics of local debts.
- Local Debt，Economic Cycle，Promotion Pressure