Local government debt and household human capital investment

• Local government debt inhibits household education spending. • Real estate purchases and household savings are the economic channels. • Our study is robust to various endogeneity tests. Leveraging large-scale household survey data from China spanning 2011 to 2019, this study examines the influence of municipal debt on household human capital investment. We present strong evidence demonstrating a negative correlation between municipal indebtedness and household education expenditures. This effect is more pronounced among families with lower parental education levels, those with daughters, and those residing in rural areas. Additionally, we find that household real estate purchases and savings are likely mechanisms that explain this relationship. Our key findings remain robust across alternative identification strategies, including instrumental variable and difference-in-differences approaches.