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Local Government Debt, Land Finance and Economic Growth: An Empirical Analysis based on Simultaneous Equation Model

WU Jing-zhou   

  1. (Institute of China Finance Science,Beijing 100142,China)
  • Received:2018-03-14 Online:2018-08-10

Abstract: Under the background that the economy has entered the New Normal, Chinese economic growth has changed from high-speed to medium-high speed, accompanied by the rapid expansion of local government debt. Based on the analysis of the interactive relationship among local government debt, land finance and economic growth, this paper integrates them into the same framework to build a simultaneous equation model. The paper reached a corresponding conclusion by using the three-stage least-squares method to estimate 2012-2016 provincial data in China: local economic growth driven by local government debt is unsustainable after the introduction of land finance, there is a positive interaction and interest coupling between land finance and local government debt, and raising the level of urbanization and developing the tertiary industry would help to get rid of the dependence of economic development on government debt and land finance. To this end, we should fully recognize that sustainable economic development should not be based on debt expansion. On the other hand, we should continue to focus on the financial risks brought about by the local fiscal gap and debt growth, and adjust land supply policies in a timely manner.

Key words: local government debt, land finance, economic growth, Simultaneous Equation Model