How does China’s new budget law affect the pricing of local government bonds?

ABSTRACT

This article examines the impact of China’s New Budget Law implementation on the pricing of Local Government Bonds (LGBs). We collect 5,442 province-year LGBs observations from 2009 to 2019 and estimate the Simultaneous Equation Models that consider the endogeneity of fiscal transparency. Our results show that the enforcement of the New Budget Law unexpectedly leads to a rise in the interest rates of LGBs overall while enhancing the fiscal transparency of local governments. The findings in this paper suggest that the marketization level of LGBs’ pricing in China needs to be further improved.

KEYWORDS:

• China
• new budget law
• local government bonds
• fiscal transparency

JEL CLASSIFICATION:

• H63
• H74

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work receives the funding from the Department of Education of Liaoning Province (project LJC202041).