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Climate risk and local government debt decisions

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  • Li, Bin
  • Wang, Chensheng
  • Lv, Wendai

Abstract

In this study, data from 277 cities at the prefecture level and above in China for the 2010–2020 period are utilized to comprehensively explore the impacts of climate risk on local government debt strategies and analyze the underlying mechanisms. The findings are as follows: (1) Climate risk compels local governments to adopt more aggressive debt strategies, thus influencing the process of mitigating local government debt risk. (2) The mechanistic analysis results reveal that the increase in investment demands and the narrowing of revenue pathways are the primary mechanisms driving local government debt decisions under the influence of an increased climate risk. (3) Significant spatial spillover effects arise as climate risk influences local government debt strategies. (4) The heterogeneity analysis indicates that the magnitude of climate risk's impact on local government debt strategies varies considerably across different governance contexts, highlighting the deeper effects of multiple and often conflicting policy objectives on local debt governance. The conclusions of this research provide valuable insights for managing government debt risk within the context of climate change.

Suggested Citation

  • Li, Bin & Wang, Chensheng & Lv, Wendai, 2025. "Climate risk and local government debt decisions," Research in International Business and Finance, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002661
    DOI: 10.1016/j.ribaf.2025.103010
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