The Demographic Burden in Shifting Local Government Implicit Debt : Evidence from China

Massive population agglomeration trends pose formidable fiscal challenges for local governments worldwide. With the help of Mobile Internet data, this paper demonstrates how demographic changes shift the implicit debts of local governments. In China, the municipal corporate bond (MCB) is an out-of-budget and market-based financing tool guaranteed by the local government to manage financing gaps. This paper finds that net population flow is a crucial driving force behind local government’s MCB debts. However, the relationship is highly asymmetric, only observable in the growing cities. In addition, this paper finds that strict supervision of MCB debts enlarges the demographic-driven fiscal imbalances