Establishment of Local Government Financial Sustainability and Debt Risk Prevention and Control Mechanism

Abstract

This paper explores the development of robust fiscal sustainability frameworks and comprehensive debt risk prevention systems tailored for local governments. It begins by establishing a theoretical foundation that delves into the essential concepts of fiscal sustainability, examining key determinants such as revenue capacity, expenditure rigidity, intergovernmental transfers, and macroeconomic volatility. Furthermore, it analyzes the structural causes and dynamic mechanisms behind the accumulation of local government debt. Using empirical methods and relevant datasets, the study assesses the current fiscal conditions of local governments and identifies prevailing debt risk levels. The results indicate that local governments are encountering a series of structural and operational challenges that hinder their ability to maintain long-term fiscal balance. Among these, rising debt levels, limited revenue growth, and rigid fiscal obligations emerge as primary sources of concern. In light of these findings, the paper proposes the construction of a scientifically grounded and practically viable debt risk prevention mechanism. This mechanism emphasizes early warning systems, multi-tiered fiscal discipline, and institutional reforms aimed at enhancing transparency and accountability. The goal is to foster long-term financial stability and promote the sustainable development of subnational public finances.