The impact of vertical fiscal asymmetry on carbon emissions in China

Abstract

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.