Does sub-provincial fiscal decentralization reform improve energy transition? Evidence from a county-level quasi-natural experiment in China

Abstract

Energy transition is essential for promoting low-carbon development, but how sub-provincial fiscal decentralization impacts urban energy transitions remains to be determined. Using county-level panel data from China for 2000–2017 and the difference-in-differences (DID) model, this study examines the mechanisms of fiscal relationships among local governments and their effects on energy transitions. The study uses China's “province-managing-county” reform (PMCR) as the starting point. Our results reveal that (Abbasi and Ahmadi Choukolaei, 2023) the PMCR has significantly promoted energy transitions through three mechanisms: increasing county-level governments' fiscal self-sufficiency and resource integration capabilities, enhancing the industrial structure and fostering green technological innovation, and increasing rural residents' income (Aziz and Bakoben, 2024). These effects are enhanced with increased agricultural mechanization, economic vitality, and provincial government attention to energy (Callaway and Sant’Anna, 2021). The PMCR contributes to reducing energy consumption disparities among counties and reducing carbon emissions (Chen et al., 2022). Clarifying county-level government expenditure responsibilities in the reform would further aid the energy transition. To promote green development, countries with decentralized systems should promote reforms for the rational distribution of revenue and expenditure responsibilities and capacity for the fiscal security of sub-provincial governments in central–local relations.