How does China's land finance affect its carbon emissions?

Abstract

In the past two decades, land finance, a phenomenon of the financing arrangement based on land development, has gradually become a fiscal model that profoundly affects China's economic development. Based on the theory of fiscal decentralization and environmental federalism, this study employs a specially designed two-stage regression method to capture both direct and indirect (through economic development and industrial structure) influences of land finance on carbon emissions. Using the provincial panel data for the period of 1998–2016, the empirical results indicate that the direct influences are dominant, and the total impact of land finance on carbon emissions is non-linear and is dependent on the level of Gross Domestic Product (GDP) per capita. After 2003, the total effect is that carbon emissions increase continuously along with the economic development. To balance economic development and environmental protection and to enhance sustainable development, the traditional style of land finance should be changed as soon as possible.