How do vertical fiscal imbalances affect energy efficiency? The role of government spending on science and technology

Abstract

How to improve energy efficiency is a practical issue of common concern around the world. In China, vertical fiscal imbalances (VFIs) generated under the existing fiscal system may have a significant impact on energy efficiency through government spending on science and technology (S&T). However, this potential relationship has not been explored in the literature. In this work, we aim to address this gap. Using Chinese provincial panel data from 2001 to 2017, this study empirically examines the relationship between VFIs and energy efficiency through a mediation model. The results show that VFIs greatly suppress energy efficiency. We further find that VFIs indirectly affect energy efficiency by reducing government spending on S&T. The results show significant regional heterogeneity. The intermediary role of government S&T expenditure is more significant in inland areas than in coastal areas. Therefore, to improve energy efficiency and achieve sustainable development, the Chinese government should focus on innovative reform of the existing fiscal system and reduce VFIs. In addition, the government should focus on fiscal spending in the field of S&T to promote technological innovation to guarantee the improvement of energy efficiency. Inland areas should pay particular attention to this issue.

Effects of Vertical Fiscal Imbalance on Green Total Factor Productivity—Evidence from China

“…Finally, in terms of research findings, our results validate the negative impact of VFI on GTFP and likewise reveal the institutional causes of the lack of incentive for the green transformation of the Chinese economy. This supports the study of Huang and Zhou,2020, and Feng, Liu, and Li, 2023 [28,55] to a certain extent and confirms Chen and Qi's, 2022 [56] view that the "governance" function of fiscal policy in China is under-represented. Furthermore, by introducing marketization indicators, our analysis confirms that VFI has a negative impact on economic and social development by distorting factor allocation (Cui, 2023) [57].…”

The Impact of Vertical Fiscal Imbalances and Local Government Tax Efforts on the Quality of Economic Development—A Study Based on Threshold Regression and Simultaneous Equation Models

“…2 ⃝ Numbers in parentheses are p-values; 3 ⃝ *** and ** denote the rejection of the null hypothesis at 1% and 5% significance levels, respectively, and I(n) denotes that the series is smooth after nth-order differencing. 4 ⃝ The data in this table were computed by Stata 17.0.…”

“…At the Central Economic Work Conference in December 2019, it was further pointed out that the economy should achieve reasonable quantitative growth and steady qualitative improvement, and it should strive to promote high-quality development [3]. General Secretary Xi Jinping stated in the report of the 20th Party Congress that it is necessary to accelerate the construction of a new development pattern and focus on promoting high-quality development, stressing that "all-round high-quality development is the essential job of constructing a modern socialist country" [4].…”

“…⃝ *** and ** indicate the rejection of the original hypothesis at 1% and 5% significance levels, respectively 3. ⃝ The data in this table were calculated by Stata 17.0 4.…”

Local Fiscal Pressure and Public Health: Evidence from China

“…Other studies have analyzed the impact of LFP on separate sector efficiency, such as energy and green environmental efficiencies. Feng et al (2023) used Chinese provincial panel data from 2001 to 2017 in examining the relationship between vertical fiscal imbalances and energy efficiency through a mediation model [ 27 ]. Their results showed that vertical fiscal imbalances substantially suppress energy efficiency by reducing government spending on science and technology.…”