Financial Resource Advantages,Implicit Financial Guarantees,and the Expansion of Local Government Debt:Evidence from the Establishment and Expansion of Urban Commercial Banks
Understanding the factors driving the continuous growth of local government debt is essential for pre-venting and mitigating major economic and financial risks.This study examines the relationship between local govern-ment financial resource advantages and the scale of urban investment bond issuance by financing platforms.Using data on the establishment and branch expansion of city commercial banks from 2005 to 2021 and employing a multi-period difference-in-difference model,we empirically analyze the impact of these financial advantages on municipal bond issu-ance.Our findings reveal three key insights:(1)Local governments'financial resource advantages,bolstered by"im-plicit financial guarantees,"significantly increase the issuance of municipal investment bonds by financing platforms.(2)There is substantial heterogeneity in this impact across prefecture-level cities,depending on the operational conditions of city commercial banks and the nature of official transitions.(3)Local governments coordinate"explicit"and"implicit"financial guarantees,leveraging budgetary,land-based,and financial resources to support bond issuance by local financ-ing platforms.This study offers new policy insights for managing local government debt risks and advancing fiscal and financial system reforms,particularly through the lenses of"implicit financial guarantees"and"fiscal-financial coordina-tion."
Financial resource advantageImplicit financial guaranteesUrban investment bondsFiscal and finan-cial coordination
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