Fiscal decentralization and the default risk of Chinese local government debts

Alice Y. Ouyang and Rui Li

Contemporary Economic Policy, 2021, vol. 39, issue 3, 641-667

Abstract: This paper examines the effects of fiscal decentralization on the default risk of Chinese local government debts based on data from both urban construction investment bonds and local government bonds. The empirical evidence indicates that while fiscal revenue decentralization tends to mitigate the default risk of local government debts, fiscal expenditure decentralization increases it. Four policy measures, namely, fiscal transparency, hard budget constraints, debt quotas, and local officials' ability to manage debt are also introduced to investigate how they affect the influence of fiscal decentralization on Chinese local government debt risk.

Date: 2021
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