This study aims to examine the sustainability of local government special-purpose bonds (LGSBs) in China, focusing on the role of long-term demographic dynamics. Specifically, it investigates how population changes are associated with provinces’ fiscal solvency regarding LGSB sustainability, through key fiscal and structural channels such as tax revenue capacity, land-based fiscal capacity and urbanization.
The study uses panel data from 30 provinces in China for the period 2015–2023. Using bootstrap-based mediation analysis, the paper examines the indirect associational pathways through which the population birth rate is related to LGSB solvency via three mediating variables: general public budget revenue, real estate investment and urbanization rate, integrating the macro-fiscal sustainability framework with a financial-market-based approach.
The bootstrap results indicate that the urbanization pathway provides the strongest empirical support for the association between demographic factors and LGSB sustainability, while the tax revenue and real estate investment channels exhibit comparatively borderline evidence. Overall, the findings suggest that population-related variables are systematically linked to the structural conditions underlying LGSB repayment capacity, rather than functioning merely as conventional macroeconomic control variables.
Unlike existing studies that emphasize macro-level debt indicators or short-term risk assessments, this study introduces a mediation-based framework to analyze the long-term associational pathways through which demographic shifts are associated with subnational debt solvency. The findings provide evidence-consistent insights for the formulation of population-sensitive fiscal and debt management policies in China.
