Abstract: Along with China's increasing economic downward pressure and the transformation of the land finance model, there exists a hidden risk of insufficient debt earning capacity behind the continuously expanding local government special debt. In this context, strengthening the financial market discipline is an important breakthrough. Based on the data on China's local government special debt from 2015 to 2023, this study innovatively constructs indicators for price deviation and fund income driving effects, analyzing and examining the impact of financial market discipline on the earning capacity of local government special debt and its underlying mechanisms from the perspective of debt management behavior. The study finds that financial market discipline has significantly increased local government special debt earning capacity, and this effect is more significant in areas with perfect information disclosure and stronger supervision by the National People's Congress (NPC). From the perspective of the impact transmission in the full lifecycle management of special debt, covering borrowing, utilization, and repayment, financial market discipline has a notably positive effect on both debt borrowing and utilization. In the borrowing phase, they significantly enhance the quality of debt projects, while in the utilization phase, they markedly accelerate fund usage progress and improve project operational efficiency. However, the influence on debt repayment behavior is not significant. Therefore, it is recommended to improve the financial market discipline mechanism and strengthen the incentive of debt behavior, optimize the full lifecycle management of special debt to enhance the effectiveness of debt operation, and strengthen the support and reform of the tripartite coordination among public finance, financial market and NPC.

Key words: special debt earning capacity, financial market discipline, debt management behavior