A Study on the Impact of Fiscal Decentralization on Green Development from the Perspective of Government Environmental Preferences

Abstract

Green development is necessary for China to carry out high-quality economic development. As an important institutional arrangement in the vertical government structure, fiscal decentralization supports regional green development. Local government environmental preferences indicate local environmental protection awareness and affect the process of regional green development to a certain extent. Based on the review of relevant theories and literature, this study conducts an empirical analysis based on Chinese provincial panel data from 2007 to 2019 using a two-way fixed effects model and a panel threshold model. Both revenue decentralization and expenditure decentralization have a U-shaped nonlinear relationship with the green development efficiency calculated by the superefficiency SBM model, which includes undesirable output. Neither factor has a positive effect on green development efficiency at this stage, while local government environmental preferences are positively connected to green development efficiency. Furthermore, a moderating effect is observed in the relationship between fiscal decentralization and green development efficiency. Under the same level of revenue decentralization or expenditure decentralization, the stronger the environmental preferences of the local authority are, the higher the green development efficiency. This moderating effect is more significant in coastal areas than inland areas. Further research reveals a threshold for the moderating effect of local government environmental preferences on fiscal decentralization on green development. When the environmental preferences of local government are below the threshold, both revenue decentralization and expenditure decentralization significantly inhibit the improvement in green development efficiency. After the threshold is passed, the negative effects of both on green development efficiency are markedly curtailed. Then, the government performance appraisal system should be further optimized, fiscal decentralization reform should be strengthened, local financial investment in environmental protection should be expanded, and synergistic regional development should be promoted. China’s green development should be promoted to an advanced stage.