Rethinking China's local government debt in the frame of modern money theory

Arbeitspapier

Local government debt in China is increasing and presents a great threat to China's financial stability. In China's fiscal system, the central government often prioritizes reducing its fiscal deficit and can determine to a great extent the distribution of revenue and expenditure between itself and local governments. There is therefore a tendency for the fiscal burden to be shifted from the central government to the local governments. Resolving China's local government debt problem requires not only strengthening regulation, but also abandoning the central government's fiscal balance target, because this target may make regulation hard to sustain in times of economic downturn. This paper discusses central-local fiscal relations in the framework of Modern Money Theory, suggesting that, because a government with currency sovereignty can always afford any spending denominated in its own currency, China's central government should bear a greater fiscal burden.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 932

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: Government Policy and Regulation ; State and Local Borrowing ; Intergovernmental Relations; Federalism; Secession ; Economywide Country Studies: Asia including Middle East
• Subject: Local Government Debt ; China ; Modern Money Theory ; Fiscal Systems

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): He, Zengping ; Jia, Genliang
• Event: Veröffentlichung
• (who): Levy Economics Institute of Bard College
• (where): Annandale-on-Hudson, NY
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/209175
• Last update: 10.03.2025, 11:42 AM CET