Abstract: The development of digital economy is the main driving force to promote the financial digitalization reform and build a digital government, which is of great significance to create a new growth point for local finance and improve the ability of local government debt risk management. Based on the panel data of 241 prefecture-level cities in China from 2015 to 2020, this paper empirically analyzes the impact of digital economy on local government debt risk and its mechanism of action. The findings show that the development of digital economy has significantly reduced the risk of local government debt and is an effective measure to prevent and resolve the risks of local government debt. The mechanism analysis finds out that digital economic development has indirectly reduced local government debt risks by improving fiscal decentralization and fiscal transparency. The heterogeneity analysis reveals that digital economic development in the eastern and central regions has an inhibiting effect on local government debt risks. At the same time, the internal and external environmental conditions play a positive role in this mechanism; and the digital economy development has a greater inhibiting effect on local government debt risk due to the positive moderating effect of the financial resource support and the local government governance capacity. Further analysis reveals that digital economic development has the same inhibitory effect on the hidden debt risks. Therefore, we should actively promote the development of the digital economy, strengthen the construction of local financial resources, improve the transparency of government finances, and enhance the support of financial resources and the governance capacity of local governments, so as to prevent and resolve the risks of local government debt.

Key words: digital economy development, local government debt risk, fiscal decentralization, fiscal transparency