Fiscal Stress and Public Safety Risks

【Authors】

WANG Weitong, CAO Molei, ZHOU Jiayin & FAN Panlai

【WorkUnit】

Dongbei University of Finance and Economics, 116025.

【Abstract】

This paper examines how local fiscal pressure affects public safety risks, using urban fire incidents in China as a representative case. As China’s urban development enters a new stage characterized by slowing land-finance growth and deteriorating infrastructure, local governments face increasing fiscal constraints even as demands for infrastructure maintenance and public safety investment continue to rise. We argue that fiscal pressure may induce a reallocation of public expenditures away from preventive maintenance, thereby elevating urban fire risk.
To identify the causal effect of fiscal pressure, we exploit the nationwide downturn in the land market after 2018 as an exogenous fiscal shock. Since local governments differed substantially in their pre-shock dependence on land-use-rights-transfer revenue, this common national shock generated heterogeneous fiscal pressure across regions. Based on this institutional setting, we construct a continuous difference-in-differences model using pre-shock land revenue dependence as the treatment intensity. The analysis combines high-resolution Visible Infrared Imaging Radiometer Suite (VIIRS) satellite fire data with multiple economic and geographic datasets to build a balanced panel of 5 km × 5 km urban grid cells covering the period from 2015 to 2023.
The empirical results show that heightened fiscal pressure increases the incidence of urban fires. This adverse effect is considerably stronger in older urban districts, where aging infrastructure raises the demand for routine maintenance, and in regions facing greater economic growth pressure. In contrast, accountability mechanisms partially mitigate the negative impact of fiscal pressure on public safety. Mechanism analyses further indicate that elevated fire risks concentrate in locations that require substantial government investment or direct public management. Additional evidence suggests that fiscal pressure distorts the composition of government expenditure by reducing the share allocated to maintenance-related spending, consistent with the proposed mechanism.
This paper contributes to the literature in three ways. First, it extends research on fiscal pressure by examining its consequences for public safety, an area that has received limited attention in previous studies. Second, it employs high-resolution satellite fire data to provide micro-level evidence linking fiscal institutions to urban fire risk. Third, it highlights the importance of preventive public investment in sustaining urban safety amid tightening fiscal conditions.
Our findings suggest that local governments should refrain from disproportionally cutting preventive maintenance expenditures during periods of fiscal stress, prioritize the renewal of aging infrastructure, particularly in older urban districts, and strengthen accountability and performance evaluation systems to better reconcile economic development objectives with public safety imperatives. Future research may extend this framework to other public safety risks and explore the interaction between fiscal institutions, urban resilience, and infrastructure governance.

JEL: H27, H41, R31

【KeyWords】

Fiscal Pressure, Public Safety Risk, Land Market Downturn, Urban Fires