IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v14y2022i17p10618-d897877.html
   My bibliography  Save this article

How Does Vertical Fiscal Imbalance Affect CO 2 Emissions? The Role of Capital Mismatch

Author

Listed:
  • Tianchu Feng

    (School of Economics and Management, Zhejiang Agriculture and Forestry University, Hangzhou 311300, China
    Jiyang College, Zhejiang Agriculture and Forestry University, Zhuji 311800, China)

  • Meijuan Liu

    (School of Economics and Management, Zhejiang Agriculture and Forestry University, Hangzhou 311300, China)

  • Chaozhu Li

    (Jiyang College, Zhejiang Agriculture and Forestry University, Zhuji 311800, China)

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 CO 2 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 CO 2 emissions and that the capital misallocation exacerbates the positive impact of the VFI on CO 2 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 CO 2 neutrality and CO 2 peaking policy goals and to promote an in-depth reform of the fiscal system.

Suggested Citation

  • Tianchu Feng & Meijuan Liu & Chaozhu Li, 2022. "How Does Vertical Fiscal Imbalance Affect CO 2 Emissions? The Role of Capital Mismatch," Sustainability, MDPI, vol. 14(17), pages 1-15, August.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:17:p:10618-:d:897877
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/14/17/10618/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/14/17/10618/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bonomo, Marco & Brito, Ricardo D. & Martins, Bruno, 2015. "The after crisis government-driven credit expansion in Brazil: A firm level analysis," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 111-134.
    2. Yanqin Zhang & Xianli You & Shanjun Huang & Minhua Wang & Jianwen Dong, 2022. "Knowledge Atlas on the Relationship between Water Management and Constructed Wetlands—A Bibliometric Analysis Based on CiteSpace," Sustainability, MDPI, vol. 14(14), pages 1-28, July.
    3. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    4. Loren Brandt & Trevor Tombe & Xiadong Zhu, 2013. "Factor Market Distortions Across Time, Space, and Sectors in China," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 39-58, January.
    5. Ceyla Pazarbasioglu & Mr. Luc Laeven & Mrs. Oana M Croitoru & Mr. Stijn Claessens & Mr. Fabian Valencia & Mr. Marc C Dobler & Katharine Seal, 2011. "Crisis Management and Resolution: Early Lessons from the Financial Crisis," IMF Staff Discussion Notes 2011/005, International Monetary Fund.
    6. Alam, M. Jahangir, 2020. "Capital misallocation: Cyclicality and sources," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    7. Qian, Yingyi & Roland, Gerard, 1998. "Federalism and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 88(5), pages 1143-1162, December.
    8. Gao, Da & Li, Ge & Yu, Jiyu, 2022. "Does digitization improve green total factor energy efficiency? Evidence from Chinese 213 cities," Energy, Elsevier, vol. 247(C).
    9. Lin William Cong & Haoyu Gao & Jacopo Ponticelli & Xiaoguang Yang, 2019. "Credit Allocation Under Economic Stimulus: Evidence from China," The Review of Financial Studies, Society for Financial Studies, vol. 32(9), pages 3412-3460.
    10. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    11. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    12. Tianling Zhang & Panda Su & Hongbing Deng, 2021. "Does the Agglomeration of Producer Services and the Market Entry of Enterprises Promote Carbon Reduction? An Empirical Analysis of the Yangtze River Economic Belt," Sustainability, MDPI, vol. 13(24), pages 1-21, December.
    13. Lin, Boqiang & Zhou, Yicheng, 2021. "Does fiscal decentralization improve energy and environmental performance? New perspective on vertical fiscal imbalance," Applied Energy, Elsevier, vol. 302(C).
    14. Jia, Junxue & Liu, Yongzheng & Martinez-Vazquez, Jorge & Zhang, Kewei, 2021. "Vertical fiscal imbalance and local fiscal indiscipline: Empirical evidence from China," European Journal of Political Economy, Elsevier, vol. 68(C).
    15. Thushyanthan Baskaran, 2010. "On the link between fiscal decentralization and public debt in OECD countries," Public Choice, Springer, vol. 145(3), pages 351-378, December.
    16. Yingyi Qian & Barry R. Weingast, 1997. "Federalism as a Commitment to Reserving Market Incentives," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 83-92, Fall.
    17. Richard Fairchild, 2008. "The Manufacturing Sector’s Environmental Motives: A Game-theoretic Analysis," Journal of Business Ethics, Springer, vol. 79(3), pages 333-344, May.
    18. Cui, Xin & Wang, Chunfeng & Liao, Jing & Fang, Zhenming & Cheng, Feiyang, 2021. "Economic policy uncertainty exposure and corporate innovation investment: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    19. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
    20. Jia, Junxue & Guo, Qingwang & Zhang, Jing, 2014. "Fiscal decentralization and local expenditure policy in China," China Economic Review, Elsevier, vol. 28(C), pages 107-122.
    21. David K. Ding & Sarah E. Beh, 2022. "Climate Change and Sustainability in ASEAN Countries," Sustainability, MDPI, vol. 14(2), pages 1-17, January.
    22. Wu, Guiying Laura, 2018. "Capital misallocation in China: Financial frictions or policy distortions?," Journal of Development Economics, Elsevier, vol. 130(C), pages 203-223.
    23. Yiping Huang, 2010. "China's Great Ascendancy and structural risks: consequences of asymmetric market liberalisation," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 24(1), pages 65-85, May.
    24. Eyraud, Luc & Lusinyan, Lusine, 2013. "Vertical fiscal imbalances and fiscal performance in advanced economies," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 571-587.
    25. Bu, Maoliang & Li, Shuang & Jiang, Lei, 2019. "Foreign direct investment and energy intensity in China: Firm-level evidence," Energy Economics, Elsevier, vol. 80(C), pages 366-376.
    26. Liangliang Liu & Donghong Ding & Jun He, 2019. "Fiscal Decentralization, Economic Growth, and Haze Pollution Decoupling Effects: A Simple Model and Evidence from China," Computational Economics, Springer;Society for Computational Economics, vol. 54(4), pages 1423-1441, December.
    27. Liu, Qigui & Pan, Xiaofei & Tian, Gary Gang, 2018. "To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 177-193.
    28. Yaowei Cao & Youtang Zhang & Liu Yang & Rita Yi Man Li & M. James C. Crabbe, 2021. "Green Credit Policy and Maturity Mismatch Risk in Polluting and Non-Polluting Companies," Sustainability, MDPI, vol. 13(7), pages 1-23, March.
    29. Wenting Ma & Rui Mu & Martin de Jong, 2021. "How Do Political Features Influence the Co-Production of Government Projects? A Case Study of a Medium-Sized Chinese City," Sustainability, MDPI, vol. 13(14), pages 1-18, July.
    30. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
    31. Jia, Junxue & Ding, Siying & Liu, Yongzheng, 2020. "Decentralization, incentives, and local tax enforcement," Journal of Urban Economics, Elsevier, vol. 115(C).
    32. Nicholas Stern, 2008. "The Economics of Climate Change," American Economic Review, American Economic Association, vol. 98(2), pages 1-37, May.
    33. Lin, Boqiang & Zhou, Yicheng, 2021. "How does vertical fiscal imbalance affect the upgrading of industrial structure? Empirical evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 170(C).
    34. Yang, Zhou, 2016. "Tax reform, fiscal decentralization, and regional economic growth: New evidence from China," Economic Modelling, Elsevier, vol. 59(C), pages 520-528.
    35. Li, Weiqing & Chien, Fengsheng & Ngo, Quang-Thanh & Nguyen, Tien-Dung & Iqbal, Sajid & Bilal, Ahmad Raza, 2021. "Vertical financial disparity, energy prices and emission reduction: Empirical insights from Pakistan," MPRA Paper 109672, University Library of Munich, Germany.
    36. Pohjola, Johanna & Laturi, Jani & Lintunen, Jussi & Uusivuori, Jussi, 2018. "Immediate and long-run impacts of a forest carbon policy—A market-level assessment with heterogeneous forest owners," Journal of Forest Economics, Elsevier, vol. 32(C), pages 94-105.
    37. Liangliang Liu & Wenqing Zhang, 2022. "How does vertical fiscal imbalance affect energy consumption in China?," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 65(8), pages 1560-1577, July.
    38. Emmanuel Tolulope Busayo & Ahmed Mukalazi Kalumba, 2020. "Coastal Climate Change Adaptation and Disaster Risk Reduction: A Review of Policy, Programme and Practice for Sustainable Planning Outcomes," Sustainability, MDPI, vol. 12(16), pages 1-16, August.
    39. Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2014. "Financial development and innovation: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 112(1), pages 116-135.
    40. Jinqian Deng & Na Zhang & Fayyaz Ahmad & Muhammad Umar Draz, 2019. "Local Government Competition, Environmental Regulation Intensity and Regional Innovation Performance: An Empirical Investigation of Chinese Provinces," IJERPH, MDPI, vol. 16(12), pages 1-17, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liangliang Liu & Wenqing Zhang, 2022. "Vertical fiscal imbalance and government spending on science and technology in China," Economic Change and Restructuring, Springer, vol. 55(3), pages 1953-1971, August.
    2. Lin, Boqiang & Zhou, Yicheng, 2021. "How does vertical fiscal imbalance affect the upgrading of industrial structure? Empirical evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 170(C).
    3. Deng, Jiapin & Liu, Qiao, 2024. "Good finance, bad finance, and resource misallocation: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 159(C).
    4. Liangliang Liu & Wenqing Zhang, 2022. "Vertical fiscal imbalance and energy intensity in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(2), pages 509-526, October.
    5. Qu, Xi & Xu, Zhiwei & Yu, Jinxiang & Zhu, Jun, 2023. "Understanding local government debt in China: A regional competition perspective," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    6. Lin, Boqiang & Zhou, Yicheng, 2021. "Does fiscal decentralization improve energy and environmental performance? New perspective on vertical fiscal imbalance," Applied Energy, Elsevier, vol. 302(C).
    7. Liangliang Liu, 2021. "Fiscal decentralization and the imbalance between consumption and investment in China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 66(1), pages 1-17, February.
    8. Yu, Jihai & Zhou, Li-An & Zhu, Guozhong, 2016. "Strategic interaction in political competition: Evidence from spatial effects across Chinese cities," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 23-37.
    9. Xiaodong Chen & Haoming Mi & Peng Zhou, 2024. "Whether to decentralize and how to decentralize? The optimal fiscal federalism in an endogenous growth model," Applied Economics, Taylor & Francis Journals, vol. 56(29), pages 3499-3516, June.
    10. Bo, Shiyu, 2020. "Centralization and regional development: Evidence from a political hierarchy reform to create cities in china," Journal of Urban Economics, Elsevier, vol. 115(C).
    11. Liu, Dayong & Xu, Chunfa & Yu, Yongze & Rong, Kaijian & Zhang, Junyan, 2020. "Economic growth target, distortion of public expenditure and business cycle in China," China Economic Review, Elsevier, vol. 63(C).
    12. Alice Y. Ouyang & Rui Li, 2021. "Fiscal decentralization and the default risk of Chinese local government debts," Contemporary Economic Policy, Western Economic Association International, vol. 39(3), pages 641-667, July.
    13. Zheng Li & Jorge Martinez-Vazquez, 2018. "Fiscal Decentralization and Interregional Capital Misallocation: Evidence from China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1816, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    14. Liangliang Liu & Donghong Ding & Jun He, 2019. "The welfare effects of fiscal decentralization: a simple model and evidence from China," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(1), pages 417-434, January.
    15. Zhou, Shiyu & Luo, Weijie, 2024. "Pollution consequences of vertical fiscal imbalance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 85-97.
    16. Juan Tang & Fangming Qin, 2022. "Analyzing the impact of local government competition on green total factor productivity from the factor market distortion perspective: based on the three stage DEA model," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(12), pages 14298-14326, December.
    17. Han, Yi & Wu, Mingqin, 2024. "Inter-regional barriers and economic growth: Evidence from China," Journal of Development Economics, Elsevier, vol. 167(C).
    18. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    19. Qichun He & Meng Sun, 2018. "Does Fiscal Decentralization Increase the Investment Rate? Evidence from Chinese Panel Data," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 75-101, May.
    20. Eberhardt, Markus & Wang, Zheng & Yu, Zhihong, 2016. "From one to many central plans: Drug advertising inspections and intra-national protectionism in China," Journal of Comparative Economics, Elsevier, vol. 44(3), pages 608-622.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:14:y:2022:i:17:p:10618-:d:897877. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.