How to improve energy efficiency is a practical issue of common concern around the world. In China, vertical fiscal imbalances (VFIs) generated under the existing fiscal system may have a significant impact on energy efficiency through government spending on science and technology (S&T). However, this potential relationship has not been explored in the literature. In this work, we aim to address this gap. Using Chinese provincial panel data from 2001 to 2017, this study empirically examines the relationship between VFIs and energy efficiency through a mediation model. The results show that VFIs greatly suppress energy efficiency. We further find that VFIs indirectly affect energy efficiency by reducing government spending on S&T. The results show significant regional heterogeneity. The intermediary role of government S&T expenditure is more significant in inland areas than in coastal areas. Therefore, to improve energy efficiency and achieve sustainable development, the Chinese government should focus on innovative reform of the existing fiscal system and reduce VFIs. In addition, the government should focus on fiscal spending in the field of S&T to promote technological innovation to guarantee the improvement of energy efficiency. Inland areas should pay particular attention to this issue.
Keywords: Energy efficiency; Government spending on science and technology; Vertical fiscal imbalances.
© 2023. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.