How Does Vertical Fiscal Imbalance Affect CO2 Emissions? The Role of Capital Mismatch

Abstract

Climate warming caused by greenhouse gases is an important practical issue. This study aims to explore the impact of the vertical fiscal imbalance (VFI) on CO2 emissions from the perspective of theoretical analysis and empirical research. This study uses panel data from 30 provinces in China from 2004 to 2018 in order to test this issue. The results show that the VFI has a significant positive impact on CO2 emissions and that the capital misallocation exacerbates the positive impact of the VFI on CO2 emissions. These study results also have a significant temporal heterogeneity. The sample results dating after 2008 were more significant. These conclusions provide economic and political references for local governments in order to develop CO2 neutrality and CO2 peaking policy goals and to promote an in-depth reform of the fiscal system.

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

“…Fourth, we choose another method to measure VFI. Referring to Feng et al ( 2022 ), we change the calculation of the gap ratio of fiscal revenue and expenditure, using national instead of local standards. The regression coefficient of VFI in column [4] remains significantly negative.…”

“…The current research on VFIs and energy efficiency is still in its infancy. In the field of fiscal and energy policy, previous studies have focused principally on the influence of VFIs on energy and environmental performance (Lin and Zhou 2021a ), energy intensity (Liu and Zhang 2022a ), energy consumption (Liu and Zhang 2022b ), and CO 2 emissions (Huang and Zhou 2020 ; Li et al 2021 ; Feng et al 2022 ). First, the most relevant study is that of Lin and Zhou ( 2021a ).…”

“…Finally, other studies have looked at the impact of VFI son CO 2 emissions. Huang and Zhou ( 2020 ) and Feng et al ( 2022 ) find that VFIs significantly increase CO 2 emissions in China, leading to environmental pollution. Li et al ( 2021 ) use Pakistani provincial panel data to study the influence of VFIs on CO 2 emissions and come to a similar conclusion.…”

“…Greater responsibility for spending has troubled local governments with respect to balancing economic development against environmental protection. Local governments prioritize allocations of fiscal resources to extensive development projects, ignoring the consequences of energy waste and environmental pollution (Tang et al 2021 ; Lin and Zhou 2021a ; Feng et al 2022 ). This choice runs counter to the objectives of high-quality economic development.…”

the Impact of vertical fiscal asymmetry on carbon emissions in China

“…The environment is a typical public good, so the government's investment in environmental protection plays an essential role in environmental protection (Fairchild 2008). Local government investment in environmental governance-related public goods and initiatives is necessary to reduce carbon dioxide emissions (Feng et al 2022).…”