Effects of Chinese-style fiscal decentralization on carbon emissions: is there a role for urban construction investment bonds?

Abstract

Fiscal decentralization is the source of China’s rapid economic growth, but inevitably leads to a surge in total carbon emissions. We verify whether the intermediary mechanism of real estate development and the urban construction investment bonds (UCIB) can share the fiscal pressure of local governments to provide empirical support to clarify and solve the realistic decentralization dilemma. This study conducted a spatial analysis of panel data from 266 Chinese prefecture-level cities from 2006 to 2019 and obtains the following findings. (1) Carbon emissions are spatially correlated, displaying the characteristics of ‘one glory and one loss’. (2) Fiscal decentralization drives an increase in carbon emissions over the entire spatial region. (3) The decomposition results show that although fiscal decentralization aggravates local carbon emission growth, it benefits the carbon emission reduction of neighboring regions. (4) The eastern regions’ fiscal decentralization does not significantly affect carbon emissions, whereas the central and western regions’ fiscal decentralization causes an upsurge in total carbon emissions. (5) Fiscal decentralization has promoted the prosperous development of the real estate industry, which positively influences carbon emissions. (6) The UCIB has a negative moderating effect on fiscal decentralization and carbon emissions, implying that it plays a role in alleviating financial pressure on local governments. Accordingly, we propose relevant countermeasures: adjusting the degree of decentralization, controlling real estate development, and issuing UCIB.