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Thispaper shows thatjust banning localgovernmentsfrom issuing debtshasnot eliminated thelocal government debtin many Chinese provinces. The paperthen advocates that local governments should be allowed to issue bonds, but subjectto some stringent fiscal rules. These fiscal rules should include a balanced-budget rule and a debt limit rule, similar to those already in place among the US states. Furthermore, such rules can only be made effective if theyare accompanied byparallelinstitutionalbuildingeffortssuch astransparent budgetprocessand budgetinstitutions,independentcreditrating agencies, properaccounting andauditing process, andotherinter-governmentalagenciesaimedatalleviatinginformation asymmetry of local government finances. Our domestic currency ratings indicatethat all Chinese provinces possess basic creditworthiness that will enable them to issue domestic currency bonds.
The pavilionhen advocates that local governments should be allowed to issue bonds, but subjectto some stringent fiscal rules. These fiscal rules should include a balanced-budget rule and a debt limit rule similar to those already already in place among the states of the United States. Furthermore, such rules can only be made effective if theyare accompanied by parallel institutional arrangements forgeffortssuch astransparent budgetprocess and budgetinstitutions, independent creditrating agencies, properaccounting andauditing process, andotherinter-governmentalagenciesaimedatalleviatinginformation asymmetry of local government finances. Our domestic currency a relationthatthat all Chinese provinces possess basic creditworthiness that will enable them to issue domestic currency bonds.