On Alienation of Public-Private Partnership into Real Debts of Local Governments

Abstract:

This paper incorporates the government debt ratio into the “mean-variance” risk assessment model， analyzes its impact on the decision-making of public-private partnership （PPP） projects， and finds that investors will require more certain risk compensation and implicit risk compensation due to loss aversion， which makes the PPP project alienated as a tool of illegal debt-raising of local governments， i.e. “Formal equity， essential debt”. Furthermore， verifies the propositions of the theoretical model through an empirical analysis of PPP projects and urban debt information in China from 2014 to 2016. The findings suggest that local governments should initiate PPP projects according to their fiscal capability， and strengthen the legal construction and social credit environment construction related to PPP projects， to protect the reasonable rights and interests of social capital， especially private enterprises.

Key words:public-private partnership(PPP);formal equity, essential debt;government leverage;risk sharing