Research in the International Journal of Information and Communication Technology has examined the relationship between local government debt and economic growth. Lian Pan of Hunan International Economics University in Hunan, China, used the Panel Smooth Transition Regression (PSTR) model to analyse data in combination with a federated learning data enhancement algorithm. Pan could thus explore how different economic structures influence the effects of borrowing. The findings suggest that while local government debt can support growth, its impact depends on the structure of the local economy. This raises important questions for policymakers.
One of the findings from the research is that industrial composition can shape the outcomes of government borrowing. In areas with well-established industries, debt-financed investment can contribute to economic expansion. However, in less diversified economies, the benefits are less obvious. Indeed, debt may place additional strain on financial resources. The research indicates that simply managing the level of debt is not enough, it is equally as important to define clearly the allocation of borrowed funds.
The findings come at a time when many local governments are facing increasing financial pressures. Economic shifts, rising borrowing costs, and “changing revenue structures” have made fiscal planning even more complex than it was ever before. Some authorities, facing shortfalls, turn to less sustainable sources of revenue, such as land sales or off-budget financing. The study highlights the risks associated with such approaches and stresses the need for greater transparency and more structured debt management practices.
It is worth noting, that the use of federated learning, a machine learning method, has allowed for more precise analysis while maintaining data privacy. By integrating this approach with the PSTR model, Pan’s work has enhanced our ability to assess financial relationships without exposing sensitive information. The method could be further refined through vertical federated learning. This would account for variations in the data distribution across different regions. Addressing these differences could improve the accuracy of economic models and their application to policymaking.
Pan, L. (2024) ‘Correlation analysis between local government debt and economic growth combined with PSTR model’, Int. J. Information and Communication Technology, Vol. 25, No. 9, pp.22–42.