Neighbor-Companion or Neighbor-Beggar? Estimating the Spatial Spillover Effects of Fiscal Decentralization on China’s Carbon Emissions Based on Spatial Econometric Analysis

Abstract

China’s rapid economic growth is associated with huge energy consumption and high carbon dioxide (CO2) emissions. Although the environmental effect of fiscal decentralization (FD) has been widely reported, its impact on CO2 is still a controversial subject. In this context, based on the panel data for China’s 30 provinces during 2003–2019, this paper uses a spatial autoregressive model to investigate the spatial spillover effects of revenue and expenditure decentralization on CO2 emissions, respectively. The results show that: (1) CO2 emissions exhibit spatial dependence, indicating that the rise of CO2 emissions in the region can lead to the rise of it in neighboring regions. (2) Both revenue and expenditure decentralization have significant positive spatial spillover effects on CO2 emissions, implying that higher FD in the province can significantly accelerate CO2 emissions in neighboring provinces. (3) There exists regional heterogeneity in the spatial spillover effect of FD on CO2 emissions. (4) Foreign direct investment (FDI) and technological innovation (R&D) can effectively mitigate the adverse effect of FD on CO2 emissions. (5) Industrial structure and human capital can significantly inhibit CO2 emissions, while economic development cannot. Therefore, it is important to optimize the system of fiscal decentralization and strengthen inter-regional cooperation on carbon emission reduction.