Author(s)

Yizhang Quan, Lixiong Yang

Corresponding Author

Lixiong Yang

Abstract

The local governments of China are in the vertical and horizontal "tension". The vertical tension stems from fiscal decentralization of the central governments, and the mismatch between fiscal and administrative power makes local government debt difficult to be sustainable. Under the horizontal tension, local governments borrow money in order to gain advantages in inter-governmental competition. In addition to the two-way tension faced by local governments, local governments also have to take into account their own financial balance, so borrowing has become a "technical activity" for local governments. This paper selects 30 provinces of China and discusses the relationship between local government debt and business environment through threshold model. The results show that the relationship between government debt and business environment is endowed with "U-shaped" and inverted "U-shaped" characteristics. "Welfare" and "resistance" coexist in the relationship between debt and business environment. There are differences in debt relations in the eastern -middle -and western regions.

Keywords

Debt of Local Governments; Business Environment; Threshold Effect; Fiscal Decentralization; Competition in Local Government