Does fiscal decentralization reduce environmental degradation through mitigating resource mismatch and digital transformation? Evidence from China's resource-based cities

Abstract

Fiscal federalism grants local governments a certain degree of fiscal autonomy and stimulates their motivation. This study analyses the impact of fiscal decentralization on urban carbon emission reduction using the double fixed-effects model and the mediated-effects model using data from 187 resource-based cities in China from 2011 to 2020. It is found that fiscal decentralization significantly promotes energy saving and emission reduction, which is reflected in the significant negative correlation between fiscal decentralization and the size of urban carbon emissions and the positive correlation with carbon emission efficiency. These results are still robust after replacing the carbon emission scale and carbon emission efficiency and using the instrumental variable method. Heterogeneity analysis reveals that fiscal decentralization significantly suppresses the carbon emission scale and positively contributes to carbon emission efficiency in the country's east-central part and resource-based cities with lower marketization. Mechanistic analyses suggest that mitigating land resource mismatch and enhancing the degree of government digital transformation are critical factors for fiscal decentralization to reduce carbon emissions. This study provides empirical support for how policymakers can balance the relationship between economic development and environmental protection when formulating local fiscal policies.