Fiscal decentralization's impact on carbon emissions and its interactions with environmental regulations, economic development, and industrialization: Evidence from 288 cities in China

Abstract

Given the global focus on climate change and sustainable development, understanding the impact of China's fiscal decentralization on carbon emissions is essential for supporting green transformation and achieving carbon peaking and neutrality targets. This study examines data from 288 Chinese cities between 2003 and 2021, using fixed effects, moderation effects, and threshold effects models to assess the relationship between fiscal decentralization and carbon emissions, alongside its interaction with environmental regulation, economic development, industrialization, and city hierarchy. The results show that fiscal decentralization significantly aids carbon reduction, but stronger environmental regulations have not effectively slowed emission growth, creating a "green paradox." Relaxed regulations prioritize short-term economic gains, leading to underinvestment and fragmented regulatory efforts, which weaken emissions control. As economic development advances, fiscal decentralization's impact on carbon emissions shifts from positive to negative. Additionally, with increasing industrialization, the negative influence of fiscal decentralization on emission intensity becomes more pronounced. In non-first-tier cities, weak regulatory enforcement and limited autonomy hinder effective carbon reduction policies. To address these issues, the central government should enhance guidance and oversight of local environmental policies, ensure strict enforcement, optimize fiscal resources for environmental investment, and promote green economic transformation. A tailored approach to fiscal decentralization is needed to balance economic growth with environmental protection, achieving mutually beneficial outcomes.