How Does Vertical Fiscal Imbalance Affect CO2 Emissions? The Role of Capital Mismatch

Abstract

Climate warming caused by greenhouse gases is an important practical issue. This study aims to explore the impact of the vertical fiscal imbalance (VFI) on CO2 emissions from the perspective of theoretical analysis and empirical research. This study uses panel data from 30 provinces in China from 2004 to 2018 in order to test this issue. The results show that the VFI has a significant positive impact on CO2 emissions and that the capital misallocation exacerbates the positive impact of the VFI on CO2 emissions. These study results also have a significant temporal heterogeneity. The sample results dating after 2008 were more significant. These conclusions provide economic and political references for local governments in order to develop CO2 neutrality and CO2 peaking policy goals and to promote an in-depth reform of the fiscal system.