Vertical fiscal imbalance and inclusive green total factor productivity

Lina Zhang and Xiangwei Lyu

International Review of Economics & Finance, 2025, vol. 98, issue C

Abstract: This study utilized data from 268 prefecture-level cities in China between 2007 and 2019 to examine the overall impact, transmission path, and threshold effect of vertical fiscal imbalance on inclusive green total factor productivity under a fiscal decentralization system. The results indicated that a vertical fiscal imbalance inhibited the enhancement of inclusive green total factor productivity. The adverse effects were attributed to the suppression of industrial structure, foreign direct investment, human capital levels, and innovation preferences. In terms of the explained variables, the adverse impact of vertical fiscal imbalance also intensified with the continuous accumulation of undesirable outputs, indicating the potential effect of vertical fiscal imbalance on them. With regard to heterogeneous results, the inhibitory impact of vertical fiscal imbalance on inclusive green total factor productivity was the most pronounced in central regions, inland regions, fourth- and fifth-tier cities, and resource-based cities. According to the threshold effect analysis, the inhibitory impact of vertical fiscal imbalance on inclusive green total factor productivity demonstrated an increasing trend as the degree of vertical fiscal imbalance increased and exhibited a moderating trend as the digital economy advanced.

Keywords: Vertical fiscal imbalance; Fiscal decentralization system; Inclusive green total factor productivity; Digital economy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:98:y:2025:i:c:s1059056024008293

DOI: 10.1016/j.iref.2024.103837

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