An Analysis Framework of Fiscal Risk with Endogenous Institutional Factors: Model and Empirical Studies

Abstract

This paper argues that the fiscal risks in China are caused and accumulated by institutional deficiency, imperfection and unequilibrium, and hence institutional explanatory factors should be considered as endogenous variables to quantify fiscal risks. Four variables, the rate of nationalization (GYHL), the rate of marketization (SCH), the rate of public finance decentralization (CZFQ) and the rate of transaction (JYFY) are employed to explain fiscal risks (CZFX). Through stepwise regression, we find that GYHL and CZFQ impose significant effects on CZFX, and there is a negative relationship between GYHL and CZFX. Based on empirical research, the conclusions can be stated as follows: not only should we carry out SOEs reform well on micro-level, but also we should control the range and limits of public finance decentralization in order to avoid and diversify fiscal risks to some extent.