Local officials’ promotion incentives and issuance of urban investment bonds

Abstract

This paper investigates the effects of local officials’ promotion incentives on the issuance of urban investment bonds (UIBs) in China. Based on data from 2014 to 2019, we find that local officials’ promotion incentives have a positive effect on the amount of UIBs but a negative effect on the cost, and these effects are much stronger in cities with a lower level of marketization and greater pressure on economic growth. We also find that before issuing bonds, local officials with strong promotion incentives intervene in the issuance of UIBs by transferring state-owned equity, providing fiscal subsidies, and injecting land assets to local government financing vehicles. The study enriches the understanding of the UIB market and Chinese local government debt.