Urban Shrinkage and Local Government Debt Risk: Interactive Relationship and Impact Mechanism

Abstract

Urban shrinkage governance and local government debt risk are prominent topics in the current research landscape of sustainable development. Against the backdrop of population divergence and the polarization between urban growth and shrinkage, this study integrated these two phenomena to examine their interrelation using Northeast China as a case study. Employing comparative induction and bivariate models, this study empirically analyzed the impact and interactive relationship between urban shrinkage and local government debt risk. The results reveal that urban shrinkage more readily catalyzes the formation and development of local government debt risk. Urban shrinkage and local government debt risk are mutually causal and interactively influential, following an evolutionary logic: urban shrinkage → outflow of urban development factors, reduced efficiency, limited develop capacity → decrease in fiscal revenue and increased fiscal burdens for local governments → expansion of debt and reduced repayment capacity → increased local government debt risk. This process accumulates in a negative feedback loop, raising critical considerations regarding the underlying social issues, urban functionality, and sustainability challenges associated with urban shrinkage and its effects.

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