How do fiscal decentralization and intergovernmental fiscal transfers affect energy consumption in China?

Abstract

Since the reform of the tax-sharing system in 1994, the regulation of the central government to local governments has relied on the mean of intergovernmental fiscal transfers (IFTs) to a certain extent. However, the existing literature has not yet explored the influence of fiscal decentralization (FD) on energy consumption in the presence of IFTs. Thus, this study empirically examines the influences of FD and IFTs on energy consumption by using panel data for 30 Chinese provinces during the period of 1998–2019. Results indicate that FD and IFTs have positive effects on energy consumption. Moreover, the positive influence of FD on energy consumption is strengthened by the improvement in IFTs. In addition, FD and IFTs affect energy consumption through industrial structure upgrading. In terms of policy implications, this study suggests that China may further reduce energy consumption by appropriately reducing the degree of FD, optimizing the intergovernmental fiscal transfer system, and promoting the upgrading of industrial structure.