Summary:
Local government debt risks and fiscal sustainability pressures have become increasingly salient in China, raising a central governance question: when a large share of liabilities is accumulated through local government financing vehicles (LGFVs) and remains partially off budget, how do local governments actually cope with repayment peaks under the constraints of the budget system? While existing studies have intensively examined why implicit debt expands, emphasizing soft budget constraints, fiscal incentives, and implicit guarantees, much less is known about how implicit debt is repaid in practice, especially when LGFV bonds approach maturity and refinancing conditions tighten. This paper fills this gap by identifying and explaining local fiscal responses to bond maturity pressure from the perspective of “Debt-to-Fee Substitution”. In theory, LGFVs are corporate entities that should rely on their own assets and cash flows for debt repayment. In practice, however, investors often price LGFV bonds based on expectations of government support, and local governments have strong incentives to prevent disorderly defaults that could trigger regional credit contraction and financial instability. This institutional tension suggests that when bond maturities concentrate and refinancing gaps emerge, local governments may rely on fiscal mechanisms embedded in the budget process to buffer repayment pressure, even in the absence of explicit bailout obligations. We therefore ask whether LGFV bond maturity pressure induces systematic changes in local budget targets and execution, and how such fiscal responses are ultimately transmitted to firms. To examine these issues, we assemble a prefecture-level panel dataset from 2008 to 2020 by manually collecting information on LGFV bonds and combining it with fiscal budget and final accounts data. Our key explanatory variable is net bond maturity pressure, defined asthe difference between the volume of maturing LGFV bonds and new issuance in a given city-year, which directly captures short-term liquidity stress faced by local governments. We further construct a measure of excessive budget growth targets, defined as the residual component of budgeted revenue growth after controlling for economic fundamentals and institutional determinants, to capture discretionary upward adjustments in budget planning. This study yields four main conclusions: First, local governments significantly raise excessive budget revenue targets, especially non-tax revenue targets, when facing higher debt maturity pressure, indicating that non-tax revenue serves as the primary adjustment tool under debt repayment stress. Second, on the expenditure side, budget items closely associated with LGFVs exhibit synchronized growth amid intensifying debt pressure. This reflects that under the “revenue-determined expenditure” fiscal system, the increase in budgeted revenue is mainly used to indirectly support LGFV debt repayment. Third, the study finds a significant downward adjustment in year-end final accounts compared to budget execution, indicating the transfer of fiscal resources. Further verification using LGFV financial statement data confirms that these platforms receive government capital injections at the year-end, corroborating local governments’ supportive actions for LGFV debt repayment. Fourth, micro-level evidence shows that budgetary pressure induced by LGFV debt maturity leads to an increase in firms’ actual non-tax burden, with no significant impact on tax burden, consistent with the macro-level findings. The main marginal contributions of this paper are threefold: First, it is the first study to systematically identify and empirically verify the “Debt-to-Fee Substitution” effect in the context of local government debt risk research, enriching the literature on the macro and micro effects of local debt risks. Second, it explores the inherent mechanism of structural changes between tax and non-tax revenue in local government budget management under debt repayment pressure, complementing relevant research on budget management. Third, it clarifies the logical chain throughwhich local debt pressure is transmitted via budget targets to push up firms’ non-tax burden, expanding research on non-tax revenue collection and its micro-level effects. The results indicate the need to strengthen market-oriented debt constraints, enhance budget management transparency and accountability, and regulate non-tax revenue collection to prevent debt risks from spreading to the real economy through budgetary channels. Future research can further analyze the long-term effects of rising non-tax burden on firms’ innovation and productivity, and examine the constraining role of digital governance and fiscal transparency in non-tax revenue expansion.
冯晨, 王照进, 刘冲, 罗添元. 地方政府债务压力下的预算结构调整与非税扩张[J]. 金融研究, 2026, 549(3): 57-74.
FENG Chen, WANG Zhaojin, LIU Chong, LUO Tianyuan. Budget Structure Adjustment and Non-Tax Revenue Expansion under Local Government Debt Pressure. Journal of Financial Research, 2026, 549(3): 57-74.
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