The 44th “Theory and Policy” at RUC NADS

Information Disclosure, Government Bailout and Structural Differentiation of Chinese Local Government Debt and Its Evolution Logic

Speaker: Ma Wentao, School of Economics and Finance, Xi’an Jiaotong University

Moderator: Liu Ruiming, National Academy of Development and Strategy, Renmin University of China

Time: October 23, 2019 (Wednesday) 14:00-15:30

Venue: Conference Room 815, Chongde Building West Wing, RUC

Abstract:

Local government debt, especially the expansion of implicit debt, has become the focus of policy makers and academic circles in recent years. In this regard, Chinese government has adopted the “breaking the rigid payment” measures, and also the strong supervision measures with the principle of penetration. However, this phenomenon has not been alleviated. This article makes further exploration from the perspective of information disclosure and government assistance. The comparative static analysis based on heterogeneous enterprise theory model shows that there is an “inverted U-shaped” relationship between fiscal system transparency and local government debt. The relationship depends not only on the transparency of the fiscal system, but also on the assistance offered by the local government. When the transparency of the fiscal system is low, there is a monotonous incremental relationship between fiscal system transparency and local government debt. “Breaking the rigid payment” does not necessarily slow down the expansion of local debt, but may result in “structural differentiation” within local government debt and brings down one issue while stir up another problem. Only when the transparency of the fiscal system exceeds a certain threshold, can “breaking the rigid payment” trigger the suppression effect of fiscal system transparency on local debt, and form an “inverted U-shaped” relationship. Further numerical simulations and empirical analysis support the above logic.

Speaker’s profile:

Ma Wentao, Associate Professor of Finance Department at School of Economics and Finance, Xi'an Jiaotong University, editorial board member of Journal of Xi'an Jiaotong University (Social Science Edition), doctoral supervisor, selected for the Shaanxi Young Talents Support Program in 2018. Research direction: macro policy, inflation expectations, application of leverage and dynamic stochastic general equilibrium (DSGE) models. He has published numerous articles in Economic Research, Management World, Economic Quarterly, World Economy and other journals, and has completed many projects such as the National Natural Science Foundation of China and Youth Projects.