Local Government Debt Risk: Current Situation and Formation Mechanism

This paper explores the current state and formation mechanisms of local government debt risk in China. With the slowdown in economic growth and the reduction in land finance revenue, the scale of local government debt has expanded, and debt risks have emerged. This paper analyzes the impact of fiscal systems, regional competition, and promotion incentives on debt risk, finding that mismatched fiscal powers and responsibilities, increased fiscal decentralization, tax competition, and promotion pressures have driven debt expansion. To address these issues, the paper proposes three policy recommendations: central fiscal support to promote economic recovery, optimization of the debt structure to enhance transparency, and strict control of new debt with performance assessments. This research provides theoretical support for understanding the formation mechanisms of local government debt risk and offers references for policy formulation.