China’s Local Government Debt: The Grand Bargain

This research aims to analyse the regional inflation volatility in Indonesia for the period of 1999-2009 from both monetary and fiscal sides. The data employed in this study are regional panel data consisting of 275 observations picked from several publications. The method of analysis used in this study is Fixed Effect Model. The proxy of monetary side is outstanding of loans in Rupiah and Foreign Currency of commercial and rural banks by project location of Provinces, and fiscal side is local government debt. This research finds both monetary and fiscal sides have positive relationship with the inflation volatility in Indonesia. However, only monetary side which has significant impact, but fiscal side does not. This finding further shows that the regional inflation in Indonesia is still a monetary phenomenon. Therefore, the solution to controll regional inflation in Indonesia is to manage credit rationing conducting by commercial and rural banks for every province.

Download Full-text

Eurozonization of the Chinese Economy: How Do Intergovernmental Transfers Affect Local Government Debt in China?

Asian Economic Papers ◽

10.1162/asep_a_00581 ◽

2018 ◽

Vol 17 (1) ◽

pp. 1-18 ◽

Cited By ~ 2

Author(s):

Ming Lu ◽

Huiyong Zhong

Keyword(s):

Local Government ◽

Government Debt ◽

Chinese Economy ◽

Fiscal Sustainability ◽

Intergovernmental Transfers ◽

Fiscal Transfers ◽

Coastal Cities ◽

Government Financing ◽

Per Capita

China's local government debt has risen dramatically bringing risks to China's fiscal sustainability and long term economic growth. Using urban construction investment bonds (UCIBs) issued by local government financing vehicles (LGFVs), we study how intergovernmental fiscal transfers impact the issuance of UCIBs under China's unitary currency system. Applying instrumental variable estimation, we find that special-purpose fiscal transfers per capita are positively associated with the issuance of UCIBs. A one-RMB increase in special-purpose fiscal transfers per capita is associated with an increase in the issuance of UCIBs per capita of 0.282 RMB, whereas regular fiscal transfers (including tax rebates and general fiscal transfers) do not affect the issuance of UCIBs. Furthermore, the effect of special-purpose fiscal transfers on the issuance of UCIBs mainly exists in inland cities rather than coastal cities. This imposes risks of “eurozonization” for the Chinese economy. We also find a deterioration of refinancing in terms of issuing more UCIBs.

Download Full-text