Impact of Local Official Corruption on Local Government Debt in China: The Mediating Role of Government Investment Efficiency

Abstract

In the process of issuing and using local government debt, local officials may be corrupted by self-interest into inappropriately increasing the bond supply, leading to excessive expansion of local government debt and an increase in debt risk. Adopting the perspective of government investment efficiency, this paper employs a piecemeal causal steps approach to analyze the influence of local official corruption on local government debt. The results from panel data on 30 provinces in China show that the local official corruption triggers the expansion of local government debt. A mediation analysis reveals that the effect operates by impairing government investment efficiency. An analysis of regional heterogeneity further shows that the impact is weaker or even disappears in developed in comparison to underdeveloped regions, which further indicates that the anti-corruption campaign supports local government debt management, especially in developed regions. This paper not only explains the relationship between local official corruption and local government debt, but also provides new ideas for local government debt management.