Fiscal Decentralization, Environmental Regulation, and Green Technological Innovation: Evidence from China

Abstract

To achieve carbon peaking and neutrality, optimizing power allocation and fiscal responsibilities between China's central and local authorities is essential for balancing environmental and economic goals. This study employs fixed-effects panel regression and a threshold model to examine the relationships between fiscal decentralization, environmental regulations, and green technological innovation in 271 prefecture-level cities from 2007 to 2019. The results reveal that environmental regulations significantly advance green innovation. Fiscal decentralization modulates the impact of these regulations on green innovation, with regional variations. In central and western areas, fiscal decentralization inhibits the regulatory effects, whereas in the eastern region, it promotes them. Moreover, fiscal decentralization exhibits a threshold effect: below a certain threshold, it hinders regulatory impact, but beyond that threshold, it enhances it. These findings offer valuable insights for policy decisions and strategies to foster green innovation, providing a theoretical and empirical foundation for policymakers involved in environmental and fiscal planning.