The relationship between energy consumption and fiscal decentralization and the importance of urbanization: Evidence from Chinese provinces

Abstract

This study examines the provincial impact of fiscal decentralization, in the form of shifting fiscal responsibilities of expenditures and revenues and others from the central government to lower local governments, as well as rapidly rising urbanization, on energy consumption for 31 Chinese provinces subject to relevant important control variables over the period 2006 to 2015. This analysis has implications for economic growth, efficiency and equality in China. To this end, the study employs multiple panel data analyses and panel quantile regressions to analyse this impact. Our findings show that fiscal decentralization has a non-linear relationship with energy consumption, which confirms the concave behaviour of fiscal decentralization in the Chinese provinces and underscores the validity of the environmental Kuznets curve hypothesis in those provinces, given the control variables. Moreover, increasing Chinese urbanization leads to high demand for energy consumption. Provincial governments can support eco-innovation and eco-investment by pursuing green growth strategies such as the expansion of the service sector and the boosting of the renewable energy sector: particularly when taking into account that coal, at one end of the spectrum, generates a 20 times greater carbon impact than renewables at the other.

Keywords: Chinese provinces; Energy consumption; Fiscal decentralization; Urbanization.