Accelerating Green Growth: The Impact of Government Environmental Audits on Urban Green Economy

Abstract

Green growth, as a universal objective in the pursuit of sustainable development, represents a critical pathway for harmonizing economic expansion with sustainability. Within this context, government environmental auditing emerges as a pivotal mechanism for advancing the modernization of national governance systems and enhancing regulatory capacity, thereby playing an indispensable role in accelerating green transformation. This study regards green economy as a proxy variable for green development. Using panel data of cities at prefecture level and above in China from 2012 to 2021, based on the performance audit of key energy-saving and environmental protection funds conducted by the National Audit Office in 18 provinces in 2017, adopts a quasi-natural experiment method, and uses the propensity score matching double difference method (PSM-DID) to examine the impact on green development. The findings indicate that such audits significantly enhance green economy levels in audited cities. This governance instrument fosters green innovation and facilitates industrial structural optimization, reinforcing its regulatory effectiveness. Furthermore, fiscal decentralization is found to moderate the relationship between environmental performance audits and urban green economic outcomes. Additional analysis reveals that the positive impact of government environmental auditing on green economy levels is more pronounced in cities characterized by lower fiscal transparency and stricter environmental regulations. By extending the research frontier of environmental auditing through the lens of fund performance evaluation, this study offers both theoretical insights and empirical evidence to support urban green development and promote sustainable economic transitions in both developing and developed economies.