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

Abstract

Green development is the key to safeguarding and improving people’s livelihoods and promoting sustainable development. Based on the provincial data of China for 2004–2019, we developed a general panel model and spatial Durbin model to test the effects of vertical fiscal imbalance (VFI) on green total factor productivity (GTFP). The results show that VFI has a significant inhibitory effect on GTFP; decomposing GTFP into the green technical efficiency change (GEC) and green technological change (GTC) indices reveals that the inhibitory effect of VFI on the GEC and GTC indices is significant and non-significant, respectively; the dampening effect of VFI on GTFP is more significant in regions with high economic growth target, low marketization, or high levels of VFI, and in Midwest, resource-based, or non-municipalities regions. The results of the spatial spillover effect analysis show that VFI has a suppressive effect on GTFP in regions with similar levels of economic development. This study enriches the existing literature by exploring the institutional causes affecting GTFP levels and provides theoretical and practical implications for comprehensively promoting a new round of fiscal system reforms in China and building a modern fiscal system with clear authority and responsibility, thereby promoting sustainable development.