Research on the Effects of Land Price Fluctuations on Local Government Debt Risks

Abstract

Under the background of economic downturn, real estate strict control and de-land finance, it is of practical value to identify the effects of land price fluctuations on local government debt risks and propose risk control measures. Based on the theory of financial risk, this paper defines indicators to measure the endogenous fragility risk of local government debts, and builds an index system to measure the exogenous economic fluctuation risk of local government debts. Through the VAR model, the paper incorporates the endogenous and exogenous risk factors into a framework to explore the mechanisms and effects of land price fluctuations on the local government debt risks. The results show that the fluctuation of land prices has a weak negative effect on the endogenous fragility risk of local government debts, has a strong positive effect on the exogenous economic fluctuation risk of debts, and ultimately has a certain positive effect on the total risk of debts. Therefore, under the effects of land price fluctuations, it is necessary to focus on preventing the risk of macroeconomic fluctuations and then actively resolve the local governments’ fragility risk.