Impact of fiscal regulation on regional carbon intensity: assessing the carbon emission reduction effect of transparent government revenue and expenditure

Jing Yu, Qian Xiao, Xuanhao Zhang and Chin-Tsai Lin

Applied Economics, 2025, vol. 57, issue 48, 7855-7872

Abstract: Fiscal regulations enhance fiscal compliance and reduce undue government intervention in economic performance, which may have important implications for low-carbon development. However, few empirical studies have investigated the impact of fiscal regulations on carbon intensity. Based on data from 278 cities in China from 2005 to 2020, this study constructed a difference-in-differences model using the release of the new Budget Law to investigate the impact of fiscal revenue and expenditure regulation on regional carbon emission intensity. The empirical results indicated that fiscal regulations can significantly reduce the intensity of carbon emissions. The mechanism tests indicate that fiscal regulation can optimize the allocation of local governments’ fiscal revenues and expenditures and improve infrastructure and innovation. Heterogeneity analyses indicate that the effect of fiscal regulation on reducing carbon emission intensity is more obvious in regions with high historical emissions and a high proportion of polluting industries. Based on the empirical results, the government should continuously improve fiscal transparency and the efficiency of fiscal fund use to reduce the impact of unreasonable fiscal revenue and expenditure on carbon emissions intensity.

Date: 2025
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DOI: 10.1080/00036846.2024.2393899

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