Local Government Debt in China: Evolution, Drivers, and Economic Effects From a Vertical–Horizontal Intergovernmental Perspective

ABSTRACT The persistent expansion of local government debt in China and the associated risks have become a central institutional concern for fiscal sustainability, financial stability, and macroeconomic management. A rapidly growing literature has examined its formation mechanisms, drivers, economic effects, and governance arrangements, yet existing studies remain fragmented and lack a unified analytical framework. Building on a vertical–horizontal intergovernmental perspective, this paper develops a stylized analytical model that incorporates both vertical interactions across levels of government and horizontal competition among local governments. On this basis, it provides a comprehensive survey of the literature on local government debt in China. Specifically, the paper maps the intellectual landscape of the field through a descriptive bibliometric analysis, reviews the evolution of conceptual definitions, financing instruments, and governance arrangements, synthesizes the main drivers of debt expansion, and evaluates the economic effects of local government debt through the policy trade‐off between growth‐oriented fiscal accommodation and discipline‐oriented fiscal governance. Finally, it discusses policy implications for the design of an incentive‐compatible intergovernmental framework, debt governance rules, and risk‐mitigation instruments, and outlines directions for future research.