Debt financing and maintenance expenditure: Theory and evidence on government-operated toll roads in China

Jiandong Chen, Jie Yu, Zhiyang Shen, Malin Song and Ziqi Zhou
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Jiandong Chen: School of Public Administration, Southwestern University of Finance and Economics, Chengdu
Jie Yu: School of Public Administration, Southwestern University of Finance and Economics, Chengdu
Malin Song: School of Statistics and Applied Mathematics, Anhui University of Finance and Economics, Bengbu
Ziqi Zhou: OSU - The Ohio State University [Columbus]

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Abstract: Transportation infrastructure is the foundation of economic growth, and the existence of high-quality roads is inseparable from their durable maintenance. However, the burden of heavy debt has brought risks to maintenance management and distorted resource allocation. This study builds a two-stage optimal theoretical model under different debt-financing constraints in China, who has the longest expressway mileage of any country in the world. We establish the two principles of "spend-and-debt" and "debt-and-spend" to demonstrate the substitution effect and the complementary effect of debt financing on maintenance, respectively. Furthermore, we use a time-varying differences-in-differences approach to estimate the effect of the financing of tollway bonds on maintenance and further discuss the mechanism. The results provide evidence that there is a significant improvement in the relationship between tollway bonds and maintenance expenditure, mainly due to the reduction of debt costs and the passive propelling of the government's spending responsibility. Our proposed theoretical and empirical framework sheds new light on transportation infrastructure research. More specifically, the impetus for public expenditure comes from a decrease of the substitution effect, which not only alleviates the burden of debt scale on the public sector but also provides a reference for developing countries to balance infrastructure construction and maintenance.

Date: 2023-03
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Published in Economic Systems, 2023, 47 (1), pp.101049. ⟨10.1016/j.ecosys.2022.101049⟩

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Journal Article: Debt financing and maintenance expenditure: Theory and evidence on government-operated toll roads in China (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04129361

DOI: 10.1016/j.ecosys.2022.101049

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