The impact of fiscal decentralization on environmental pollution and the transmission mechanism based on promotion incentive perspective

Digital economy and fiscal decentralization: Drivers of green innovation in China

The impact of government behavior under a fiscal decentralization system on the interplay between the digital economy and both the quality and efficiency of green innovation poses an intriguing question. To address this, the present study employs two-way fixed-effects models, instrumental variables, and spatial econometric techniques, using data from 30 provinces and cities in China spanning 2004 to 2019. The findings reveal that the advancement of the digital economy significantly enhances the quality and efficiency of green innovation. In the context of China's fiscal decentralization, local governments frequently employ a "race to the top" strategy, amplifying the digital economy's beneficial impact on green innovation. This effect is particularly pronounced in economically prosperous regions that prioritize environmental assessments. Additionally, the study identifies a spatial demonstration effect, indicating that fiscal decentralization bolsters the digital economy's influence in adjacent regions. Consequently, policy recommendations include deepening the digital economy, advocating for increased fiscal autonomy for local governments, refining the performance appraisal systems for local officials, and establishing a well-calibrated environmental transfer mechanism. Further, leveraging the positive spatial correlations among local governments can foster a competitive yet collaborative landscape for green innovation.

Fiscal decentralization, leader localization, and reduction of pollution and carbon emissions -empirical evidence from China's fiscal "province-managing-county" reform

The fiscal system plays an important role in the government's environmental governance efforts. There is currently no consensus on how fiscal structure adjustments impact pollution and carbon reduction. This paper uses China's fiscal "province-managing-county" reform (FPMCR) implemented in 2004 as a quasi-natural experiment, utilizing panel data from 1670 counties in China from 2000 to 2020 to investigate the impact of fiscal decentralization on reduction pollution and carbon emissions (RPCE), as well as its underlying mechanisms. The results show that (1) from 2000 to 2020, China's RPCE shows an overall trend of fluctuating increase, with its value turning positive after 2013. China's RPCE exhibits a spatial pattern characterized by "lower in the north, higher in the south; higher in the east, lower in the west". (2) After implementing FPMCR, the RPCE levels in reformed counties decreased by -1.44%, showing that reformed county-level governments prioritize economic development over environmental protection. (3) The mechanism analysis found that after implementing FPMCR, reformed counties experienced a 9.16% increase in nighttime light intensity (NLI), and a 3.99% and 4.34% increase in the number of large-scale industrial enterprises (NLIE) and industrial agglomeration (IA), respectively. This suggests that FPMCR leads to radical urbanization and rapid industrialization in counties, which is detrimental to the improvement of RPCE levels. (4) The spatial heterogeneity analysis found that FPMCR's impact coefficient on RPCE levels in the eastern regions is -1.96%, while in the western regions it is -1.16%. This indicates that reformed counties in the eastern regions are more likely to invest expanded fiscal resources in economic development projects, leading to a decrease in RPCE levels. (5) The temporal heterogeneity analysis found that after the promulgation of the "Three-Year Action Plan to Win the Blue Sky Defense Battle" in 2018, the adverse impact of FPMCR on RPCE is completely reversed, leading to a 1.76% increase in RPCE levels. (6) Further analysis reveals that localizing leaders can slow down the promotion of county-level urbanization and industrialization by the FPMCR, benefiting the improvement of RPCE levels. In other words, "the outsider monk will not recite scriptures as well as a local one". This study has clarified the causal relationship and underlying mechanisms between fiscal decentralization and environmental governance, providing reliable theoretical support for optimizing grassroots fiscal systems and reducing environmental pollution in other transitional economies. It enriches the field of environmental economics related to fiscal decentralization.

Exploring the nexus between fiscal decentralization and ecological sustainability: a fresh perspective from the moderating role of geopolitical risk and updated international evidence

Fiscal decentralization has been long employed to enhance the utilization of financial resources for sustainable development. Nevertheless, its effectiveness in limiting ecological degradation is ambiguous, especially when a country faces geopolitical risks. Different from previous works which separately examine the impacts of either fiscal decentralization or geopolitical risks on ecological sustainability, this research examines the moderating role of geopolitical risks on the non-linear relationship between fiscal decentralization and ecological footprints across different levels of environmental condition. An advanced panel quantile regression is applied to a sample of 23 advanced and emerging market economies from 1990 to 2018. The empirical results indicate that the nexus between revenue decentralization and ecological footprint follows an inverted U-shaped pattern at the 20th to 60th quantiles of ecological footprint. Meanwhile, the linkage between expenditure and ecological footprint reflects a U-shaped pattern across all quantiles. Notably, geopolitical risk strongly moderates the connection between fiscal decentralization and ecological footprint with the role being stronger in the case of revenue decentralization. This research provides valuable implementations to tailor policies for transferring revenue and expenditure responsibilities to sub-governmental bodies towards sustainability targets based on their current ecological conditions and contexts of geopolitical instability.

How does financial decentralization synergies carbon reduction and pollution control in China?

This study looks at how carbon reduction, pollution management, and monetary decentralization in China all work together for a win-win situation. Since China is the most significant contributor to global warming, the country must implement policies to cut carbon emissions and curb pollution. One possible answer is financial decentralization, delegating federal financial responsibilities, and decisions to state and regional governments. The study used the weighted matrix analysis technique, LM matrix analysis technique, and ARDL short-run and long-run analysis estimates. However, the degree to which it will help China reduce carbon emissions and regulate pollution is unclear. This study takes a multifaceted approach to the investigation of this problem. Determining the efficacy of financial decentralization in addressing environmental concerns and drawing policy implications for China's environmental governance framework requires investigating the drivers of this trend and the mechanisms through which it operates. We perform a comprehensive empirical analysis to examine the results of using Chinese data from 1999 to 2019. This study's results provide new information to the literature by showcasing the power of fiscal decentralization in propelling environmentally sound policies in China. Central policy takeaways from the report include decentralizing financial authority to local governments, encouraging cooperation across multiple tiers of government, and setting up effective systems for monitoring and enforcing compliance. These policy suggestions can help China decrease carbon emissions and regulate pollution more efficiently, paving the way to better environmental results and a more sustainable future.

Can the digital economy development achieve the effect of pollution reduction? Evidence from Chinese Cities

As a new economic form, the digital economy is not only empowering new impetus to economic growth, but also reshaping specific business forms of economical operation. Therefore, we conducted an empirical test to verify the impact and mechanism of pollution reduction in the digital economy, based on the panel data of 280 prefecture-level cities in China from 2011 to 2019. The results show that, first the development of the digital economy indeed has the positive effect of realizing pollution reduction. The results of mediating effect test indicate the influence mechanism mainly rely on promoting the upgrading of industrial structure (structural effect) and upgrading the level of green technology innovation (technical effect). Second, the results of regional heterogeneity analysis show that the emission reduction effect of digital economy development on four pollutants is characterized by weakness in the east and strong in the west in regional distribution. Third, the development of digital economy has a threshold effect on the level of economic development to achieve its pollution reduction effect. Further identification of the threshold effect indicates that the higher the level of economic development, the better in emission reduction effect.

How does the fiscal pressure of local governments affect China's PM2.5 emissions?

Affected by the epidemic and other factors, the global economy is in a downturn, and countries around the world are under unprecedented debt pressure. How will this affect environmental protection? Taking China as an example, this paper empirically studies the impact of changes in local government behavior on urban air quality under fiscal pressure. This paper uses the generalized method of moments (GMM) to find that fiscal pressure has significantly reduced PM2.5 emissions, with a unit increase in fiscal pressure will increase PM2.5 by about 2%. The mechanism verification shows that three channels affect PM2.5 emissions: (1) fiscal pressure has prompted local governments to relax the supervision of existing pollution-intensive enterprises. (2) Local governments reduce environmental regulations for attracting more pollution-intensive enterprises. (3) Local governments tend to reduce environmental protection investment to save fiscal expenses. The paper's conclusions provide new policy ideas for promoting environmental protection in China, as well as served as a case for analyzing current changes in environmental protection in other countries.

The impact of vertical fiscal asymmetry on carbon emissions in China

Facing the double pressure of promoting economic growth and achieving the goal of "emission peak" by 2030, China must cut down the carbon emission intensity. Focusing on the typical characteristics of China's financial system arrangement, we theoretically analyze the mechanism of vertical fiscal asymmetry affecting carbon emission intensity and use a panel data from 30 Chinese provinces to conduct an empirical examination. The results show that (1) vertical fiscal asymmetry significantly increases the local carbon emission intensity. After a series of robust tests, such as replacement variables and sample data, the conclusion is still valid. (2) The analysis of regional heterogeneity shows that the influence of vertical fiscal asymmetry in carbon emission intensity is the largest in the central area of China, followed by the eastern provinces, and not evident in the western area. The rise in carbon emission intensity brought on by vertical fiscal asymmetry can be successfully reduced by the central transfer payment. The impact of vertical fiscal asymmetry on carbon emission intensity will be greatly lessened when the central transfer payment surpasses the threshold. (3) The mechanism test shows that vertical fiscal asymmetry increases the carbon emissions intensity by three paths: reducing the intensity of environmental regulation, strengthening local governments' dependence on land finance, and local government competition. The above analysis further enriches the relevant research on how China's vertical fiscal asymmetry system affects carbon emission intensity through land finance and local government competition while pointing out the role of transfer payment, and it can help to provide new ideas and empirical evidence for further improving the financial system and promoting the green development of the economy.

Role of financial decentralization on carbon taxation and carbon emission: Way forwards for economic recovery

The study intends to assess the role of financial decentralization on carbon taxation and carbon emission to recommend the way forwards for economic recovery. To estimate the nexus, study applied the cointegration analysis technique, CGE estimation model, long-run analysis using t-CGE model, and robustness analysis technique on Chinese data. Research findings declare that financial decentralization has significant role on extending the carbon taxation in China and financial decentralization supported 14.92% to expand carbon taxation throughout the Chinese industries. In such industries, pollution emission industries are the top of the list including transportation industry and other manufacturing companies. Overall, manufacturing industries size is about 78% and 11% size of transportation industry is included. Correspondingly, the findings also revealed that financial decentralization supports climate change mitigation with 29% and carbon taxation limits carbon emission with 44% in Chinese industries. Study directs to the stakeholders to enhance carbon taxation schemes in all sectors of the all the industries of China and come up with the viable policy action so that the desired sustainable development goals may achieve effectively. Hence, stakeholders need to consider recommendations of preceding research to enhance green economic recovery.

Do environmental target constraints of local government affect high-quality economic development? Evidence from China

The purpose of this paper seeks to investigate the impact that environmental target constraints imposed by local governments have on the quality of economic development. In this paper, the city-level economic high-quality development index was measured, and data on environmental target constraints were compiled from the governmental work reports submitted by 230 cities between the years 2004 and 2013. Using the DID model and the instrumental variable method, it is found that (1) when environmental performance is factored into the performance evaluation of governmental officials, environmental target constraints contribute significantly to the high-quality growth of the local economy and (2) environmental target constraints are heterogeneous across regions and have a greater promoting effect on cities in eastern China than in central and western China. These conclusions are supported by a number of robustness tests. Resultantly, this paper provides a novel perspective for understanding the relationship between environmental protection and the quality of economic development. In addition, it offers the government theoretical and empirical support to strengthen the development of an environmental protection system and promote high-quality economic development. Moreover, this study delivers crucial empirical evidence for developing countries to simultaneously achieve environmental pollution control and economic growth.

The Impact of Economic Growth Target Constraints on Environmental Pollution: Evidence from China

Economic growth target (EGT) has become an essential tool for macroeconomic administration all around the world. This study examines the effect and mechanisms of EGT on environmental pollution (EP) by using economic growth target data from provincial Government Work Reports in China from 2003-2019. The conclusions denote that EGT significantly aggravates regional EP, and it still stands after robustness tests and instrumental variable (IV) estimation. The result of mediating effect shows that EGT aggravates EP mainly from three ways: investment surge, technological innovation, and resource allocation. The result of the moderating effect shows that government's fiscal space positively adjusts the effect of EGT on EP, while environmental regulation negatively adjusts the effect of EGT on EP. The heterogeneity test reflects that the effect of EGT on EP is more significant on provinces that adopt a "hard constraint" setting method and fulfill EGT. Our study provides a reference to better balance the link between EGT and sustainable development for the government department.

The Interaction Mechanism of Fiscal Pressure, Local Government Behavioral Preferences and Environmental Governance Efficiency: Evidence from the Yangtze River Delta Region of China

In environmental governance, local governments are the main actors, and their behavioral preferences between economic growth competition (EGC) and environmental regulation (ER) affect the inputs and outputs of environmental governance. Most studies discuss the relationship between government behaviors and the environment from the fiscal decentralization perspective, with few studies from the fiscal pressure (FP) perspective. Importantly, the bidirectional interaction mechanism is easily ignored. This study measured local government FP, EGC, ER, and environmental governance efficiency (EGE) in China's Yangtze River Delta (YRD) region from 2000 to 2020. Moran's I index was used to identify the change characteristics of local government behavioral preferences. The interaction mechanism was analyzed by a panel vector autoregression (PVAR) model. The results show that (1) from 2000 to 2020, FP was generally strengthened. EGE generally showed fluctuating and rising change characteristics, with more obvious fluctuating and rising characteristics before 2012 and after 2012, respectively. Local governments shifted from a strong alternative preference to a weak synergistic preference. (2) FP had a self-reinforcing effect. EGC and ER had a self-weakening effect. EGE had not only a self-weakening effect but also a weak self-dependence. (3) There is a double negative interaction mechanism between FP and local government behavioral preferences. FP made local governments prefer to reduce EGC and relax ER, but in fact, EGC and ER were conducive to alleviating FP. (4) There is a negative transitive influence mechanism between FP, local government behavioral preferences and EGE. The negative effect of FP on EGE can be transmitted by reducing EGC and ER. This paper provides a scientific basis for improving EGE in the YRD region and understanding the behavioral logic of local governments' environmental governance and a reference for other rapidly industrializing and urbanizing regions.