التفاصيل البيبلوغرافية
| العنوان: |
Countercyclical central government transfers incentivize local government overborrowing: Theory and evidence. |
| المؤلفون: |
Liu, Yan1 (AUTHOR) yanliu.ems@whu.edu.cn, Wu, Guowei2 (AUTHOR) wuguowei@pku.edu.cn, Xiong, Chen1,3 (AUTHOR) xiongchen@whu.edu.cn |
| المصدر: |
Economic Modelling. Mar2024, Vol. 132, pN.PAG-N.PAG. 1p. |
| مصطلحات موضوعية: |
*FEDERAL government, *LOCAL government, *DEBT service, *PUBLIC debts, *GOVERNMENT policy, GASOLINE taxes |
| مصطلحات جغرافية: |
CHINA |
| مستخلص: |
Local governments in China have strong incentives to overborrow, leading to unsustainable local debt. Recent research suggests that higher central government transfers serve as a key incentive for local governments to overborrow. This paper constructs a theoretical model and shows that it is the countercyclicality of central government transfers, that is, the negative correlation between transfers and local revenues, that act as the main incentive for local governments to overborrow. We test the model predictions using hand-collected provincial data on local government debt and budgets. The empirical evidence strongly supports the prediction that the negative correlation—not the magnitude—of central government transfers is the main driver of the incentive for local governments to borrow excessively. The countercyclical nature of central government transfers provides insurance against local government debt service, thereby increasing the incentive for local governments to borrow. The findings suggest the need to change the central government transfer policy framework. • Central government transfer raises local government debt. • Countercyclicality of transfer is the key, as it hedges local revenue risks. • Countercyclical transfer leads to excessive local borrowing. • The model fits the features of Chinese local government debt well. • Empirical tests support the theoretical mechanism. [ABSTRACT FROM AUTHOR] |
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| قاعدة البيانات: |
Business Source Index |
