Fiscal Decentralisation, Economic Development, and Carbon Emissions: Empirical Analysis Based on the Provincial Static and Dynamic Panel Data

Abstract

The target 'Carbon Peak' and 'Carbon Neutral' in China is a key strategic choice to promote environmental regulation and high-quality economic growth. Public finance, as the bedrock and pillar of national governance, has a significant influence on China's macroeconomics and policy execution. This paper selects provincial panel data of China from 2010 to 2019, together with a two-way fixed-effect model and a Difference-GMM model, in order to conduct an empirical analysis of the impact of fiscal decentralisation and economic development on carbon emissions. The findings reveal that fiscal decentralisation has a considerable positive impact on carbon emissions, and that economic development and carbon emissions have an inverted U-shaped connection. Furthermore, economic development may reduce fiscal decentralisation's contribution to carbon emissions. In addition, there is a dynamic lag impact associated with carbon emissions. As a result, to achieve green and low-carbon transformation in China, advanced and long-term planning is required, as well as the optimisation of local government evaluation mechanisms and the application of fiscal funds.