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Since the financial crisis of 2008, the Chinese government has implemented a series of fiscal policies to stimulate local investment and economic development, with bond issuance being one of the key measures. Beginning in 2015, local government revenue bonds were introduced alongside the long-standing general obligation bonds. Notably, the issuance of these bonds saw a significant increase following the 2019 pandemic, aimed at injecting funds into profitable major projects to stimulate local economic recovery. This research aims to verify the relationship between local government debt and economic development by investigating the impact of bond stock on economic growth across 31 provinces in China.Utilizing panel data from 2015 to 2022 and employing the system GMM testing methodology, the analysis reveals that a 1% increase in the stock of general obligation bonds in the previous year leads to a 0.039% increase in GDP in the current year. In contrast, a 1% increase in the stock of revenue bonds corresponds to a 0.066% decrease in GDP. The findings underscore the importance of general obligation bonds in fostering economic growth, while highlighting that the stock of revenue bonds may not only fail to promote economic recovery but could also bring about certain negative effects. The results emphasize the imperative of prudent management of government revenue bonds and the urgent need for further research to address the effectiveness of expanding their issuance and its implications for economic growth. Properly managing these bonds is crucial to ensuring that fiscal policies achieve their intended economic outcomes without inadvertently causing harm.
Zhang et al. (Thu,) studied this question.