Abstract:From the perspective of residents’ welfare maximization, this paper analyzes the relationship between local government debt and residents’ welfare. Local government debt can non-linearly affect the welfare of residents through mechanisms of “net income effect” and “environmental pollution effect”. Empirical research results show that:there is an inverted U-shaped relationship between local government debt growth and residents’ welfare, which shows that the increasing of local government debt makes the welfare of regional residents decline after local government debt growth exceeding its turning point. From the prospective of the stages of local government debt development, before 2005, the turning point of local government debt growth with optimal residents’ welfare is higher than that of local government debt growth since 2005. After 2005, the growth of local government debt has negative impacts on residents’ welfare. From the view of urban and rural areas, the turning point of local government debt growth for the optimal welfare of urban residents is lower than that of rural residents.