Decentralization, institutional quality, and carbon neutrality: Unraveling the nexus in China's pursuit of sustainable development

Abstract

Achieving carbon neutrality is essential for environmental sustainability and should be pursued with minimal disruption to economic growth. China's recent commitment to carbon neutrality holds significant importance in current discussions. This study investigates strategies to achieve sustainable development goals (SDGs), emphasizing carbon neutrality. It also examines the long-term impacts and causality between fiscal decentralization and institutional quality in relation to carbon dioxide (CO2). emissions Utilizing the quantile autoregressive distributed lag (QARDL) approach and the Granger causality in quantiles, our findings reveal a statistically negative ECM parameter across all quantiles. This indicates a stable, long-term relationship between fiscal decentralization (FDC), institutional quality (INSQ), and CO2 emissions. The study verifies the presence of the Environmental Kuznets Curve (EKC) hypothesis in China across different quantiles. In the long run, fiscal decentralization seems to increase CO2 emissions, but robust institutional quality mitigates this impact. The Granger causality results highlight the intricate relationships among the variables. This research emphasizes the need for policymakers to bolster environmental protection and efficiency, ensuring fiscal decentralization benefits both environmental and economic agendas.