Stepping forward with ease: Government debt governance as a catalyst for entrepreneurship

Chuantao Cui, Yinhao Yang, Huanhui Gan and Jie Dong

Finance Research Letters, 2024, vol. 69, issue PB

Abstract: This study evaluates the causal effect of government debt on entrepreneurship. Exploiting New Budget Law reform in China that regulates the scale of local government debt, we find that government debt reduction bolsters entrepreneurial ventures by optimizing land utilization and enhancing access to start-up loans. Consistently, the entrepreneurial effect is more pronounced in unregulated industries and downstream sectors. Furthermore, we demonstrate that government debt reduction also contributes to entrepreneurship quality. It induces smaller entrants with higher survival rates post-reform, resulting in more incumbent enterprises exiting. Our results underscore the benefits of encouraging government debt governance experimentation in lowering entry barriers.

Keywords: Government debt; Firm entry; Credit allocation; Land utilization; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: G32 H72 L25 R33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012194

DOI: 10.1016/j.frl.2024.106190

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