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The impact of local government debt on household consumption inequality

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  • Lv, Xueliang
  • Zhang, Hua

Abstract

Constructing a Relative Deprivation Index of household consumption using data from the China Household Finance Survey (CHFS), we examine the impact of local government debt on household consumption inequality and its underlying mechanisms. We find that explicit local government debt significantly exacerbates household consumption inequality, whereas implicit local government debt has a considerably mitigating effect. The mechanisms through which local government debt affects consumption inequality are analyzed from the perspectives of income inequality, liquidity constraints, and household leverage ratios. In terms of the debt formation process and the structure and efficiency of fund utilization, several factors, such as the government's intervention capacity, will have differentiated impacts on the economic effects of local government debt.

Suggested Citation

  • Lv, Xueliang & Zhang, Hua, 2026. "The impact of local government debt on household consumption inequality," Pacific-Basin Finance Journal, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:pacfin:v:97:y:2026:i:c:s0927538x26000041
    DOI: 10.1016/j.pacfin.2026.103058
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