Why Does the Construction of Low-Carbon Cities Contribute to the Expansion of Urban Investment Bonds? Evidence From China

From the perspective of debt expansion, this study examines the impact of low-carbon city construction on the short-term fiscal sustainability of local governments. Using city-level data from China between 2013 and 2022, and taking the third batch of low-carbon city pilot policies as a quasi-natural experiment, a difference-in-differences model is employed for empirical analysis. The findings reveal that compared to cities not included in the pilot list, the scale of urban investment bond issuance in pilot cities significantly increased after policy implementation. Mechanism analysis indicates that during the process of low-carbon city construction, local governments have assumed specific responsibilities in areas such as green technology innovation, industrial structure upgrading, and public transportation development, leading to increased fiscal expenditure decentralization and forming a transmission path of “low-carbon pilot city policy - deepened local government participation in local affairs - intensified fiscal expenditure decentralization - debt expansion†. Heterogeneity analysis further reveals that the debt expansion effect of low-carbon city construction is particularly pronounced in eastern regions, areas with stronger environmental awareness, smaller cities, and regions with lower levels of industrial structure sophistication. Based on the empirical results, this study proposes recommendations for improving policy innovation design and implementation mechanisms, aiming to alleviate the short-term fiscal pressure on local governments and balance low-carbon transition with debt risks, providing valuable insights for other countries worldwide in achieving the dual goals of environmental protection and economic development.