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Local government debt expansion and regional financial risks: mitigation effect of financial regulation or risk resonance?

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  • Zhu, Enyang
  • Lang, Shusen

Abstract

Based on provincial-level data from China between 2013 and 2021, this paper examines the impact of local government debt expansion on regional financial risks. The findings reveal that local government debt expansion significantly exacerbates regional financial risks, with this effect being more pronounced in regions with weaker fiscal self-sufficiency capacity and higher informatization levels. Moreover, excessively stringent financial regulation may trigger a “risk resonance” effect. The study uncovers the multidimensional driving mechanisms behind debt risk formation, providing theoretical support for implementing differentiated regulatory approaches.

Suggested Citation

  • Zhu, Enyang & Lang, Shusen, 2025. "Local government debt expansion and regional financial risks: mitigation effect of financial regulation or risk resonance?," Finance Research Letters, Elsevier, vol. 86(PD).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pd:s1544612325018628
    DOI: 10.1016/j.frl.2025.108608
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    Keywords

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    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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