Has inspection supervision effectively reduced the risk of local government debt? Evidence from China

This paper employs a difference-in-differences (DID) model to analyze data from 289 Chinese prefecture-level cities from 2009 to 2016 and comes to the following conclusion: patrol supervision can reduce the risk of local government debt. After conducting a series of robustness tests, including propensity score matching (PSM) tests, transformation study design, and replacement of explained variables, this conclusion remains robust. Further investigation reveals that the effec-tiveness of inspection and supervision in reducing local government debt risk is more pronounced in regions with a poorer financial ecological environment and a greater soft budget constraint, indicating a substitute function. By examining the impact of patrol supervision on local gov-ernment debt risk, this paper provides valuable insights for preventing and resolving major risks and offers up recommendations for future efforts in this domain.