Fiscal decentralization, industrial structure upgrading, and carbon emissions: evidence from China

Abstract

The debate over the role of fiscal decentralization and industrial structure upgrading in China's environmental governance has received increasing attention. Based on China's provincial panel data from 2003 to 2019, this paper investigates the impact of fiscal decentralization and industrial structure upgrading on carbon emissions to provide empirical evidence for the above theoretical argument. The results show that fiscal decentralization and industrial structure upgrading are negatively correlated with carbon emissions, while the interaction term for fiscal decentralization with industrial structure upgrading presents a facilitating effect on carbon emissions. Besides, fiscal decentralization, industrial structure upgrading, and the interaction term have significant regional heterogeneity on carbon emissions. When fiscal decentralization and industrial structure upgrading are taken as threshold variables, the effects of industrial structure upgrading and fiscal decentralization are significantly nonlinear. Moreover, environmental regulation, transportation infrastructure, and carbon emissions are positively correlated. There exists an inverted U-shaped relationship between carbon emissions and economic growth, which proves environmental Kuznets curve theorem. However, FDI and urbanization have no significant effect on carbon emissions. According to the above conclusions, it is necessary to strengthen the positive interaction between fiscal decentralization and industrial structure upgrading in mitigating carbon emissions, promoting the green and low-carbon transformation of China's economy, thus realizing the goals of "carbon peak" and "carbon neutrality."

Keywords: Carbon emissions; Carbon neutrality; Carbon peak; Fiscal decentralization; Industrial structure upgrading.