Research of Chinese Government debt sustainability and its effect on economic growth

Abstract This paper researches the appropriate scale of Chinese government debt from the perspective of debt sustainability and its effect on economic growth. First, we made a model based on fiscal response framework and introduced trade openness, savings ratio and so on as control variables. We use it to measure the upper limit of the sustainable debt ratio over the years. Then we did empirical research and found that government debt has a threshold effect on economic growth, with a turning point of about 33.3%. Besides, we also found that debt affects economy by affecting the formation of total society capital significantly, and excessive debt may inhibit the formation. According to our research, the government should release savings reasonably, improve its sensitivity to debt and use it more efficiently to enhance the turning point of debt impact. Government should also gradually reduce current debt ratio to optimize the relative scale of debt.