Does Municipal Performance Impact Climate and Biodiversity Risks? Micro-Level Evidence from India

Do municipalities with stronger balance sheets sustain more biodiversity? We study 174 Indian Municipal Corporations from 2013 to 2023. We investigate how the size, asset productivity, and capital-expenditure intensity of a municipal balance sheet influence the number of bird species that observers record in each city. First, municipalities with larger balance sheets and higher asset productivity sustain significantly higher biodiversity, in both cross-sectional and event-study tests around municipal council elections. Second, all three measures reshape air pollution and urban form, but only one channel predicts biodiversity: the built-up footprint does not predict species counts, while nitrogen dioxide does. Capital expenditure cuts every pollutant we measure, and that channel alone delivers a significant biodiversity benefit, though we cannot detect its overall effect. Third, asset productivity works across municipalities rather than within them, while balance-sheet size works through a city’s own growth. The size and composition of a municipal balance sheet therefore shape local biodiversity.