Abstract: Reducing the leverage ratio of local governments is a crucial measure for preventing and resolving local government debt risks and achieving high-quality economic development. The technology-driven nature of the digital economy offers a novel pathway to lowering this leverage ratio. Based on the panel data from 264 prefecture-level cities in China from 2015 to 2023, this study systematically deconstructs the impact and the mechanisms through which digital economic development influences the local government leverage ratio. The findings reveal that the development of the digital economy exerts a significant, intertemporal inhibitory effect on the leverage ratio, characterized by a dynamic pattern of“initial manifestation in the current year and reinforcement in the subsequent year.”The mechanism analysis indicates that the new type of infrastructure development and the industrial structure upgrading serve as dual mechanism variables, forming a virtuous cycle mechanism: “digital infrastructure investment—industrial ecosystem cultivation—fiscal revenue growth—reduction in local government leverage ratio.”The heterogeneity analysis demonstrates that this effect is more pronounced in first-, second-, and third-tier cities, cities with high levels of digital economic development, cities with low fiscal transparency, and cities with high government fiscal expenditure. Consequently, it is essential to promote the synergistic development of the digital economy and fiscal sustainability. Efforts should focus on enhancing fiscal revenue-generating capacity through digital industry chain construction, fostering regional coordination to alleviate fiscal risks, and establishing a “digital governance-fiscal health”system to improve the long-term mechanisms for reducing the local government leverage ratio.

Key words: digital economy development, local government debt, leverage ratio of local government, fiscal transparency, advanced industrial structure