Demographic shifts and the strategic use of flexible off-budget debt tools

Demographic shifts pose significant fiscal challenges for local governments worldwide. This paper examines how municipal corporate bonds (MCBs), a flexible and off-budget financing solution, help address financing gaps caused by demographic shifts. Using location-based service data and an IV approach, we identify a causal effect of net population change on MCB issuance. We find that growing cities increase MCB issuance in response to population influx, but this pattern is absent in shrinking cities. In addition, the relationship weakens under stricter central government debt policies. Our findings reveal how demographic shifts and regulatory environments jointly shape municipal financing behaviors.