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Local Government Debt and Growth Convergence

The link between public debt and growth has long been discussed. This paper evaluates the effect on growth convergence from local government debt using a panel data of 276 Chinese cities. Our results show that Chinese local government debt hike since 2008 had a robust positive effect on growth convergence. We also provide and test several suggestive mechanisms behind our findings. And we use a policy shock as an instrumental variable to show that our proposed relationship is causal.