Does Fiscal Decentralization Matter for Improving Environmental Quality Through Green Finance and Green Technology? Empirical Investigation in Chinese Provinces

Abstract

This study applied the Spatial Durbin model (SDM) to examine the regional impact of fiscal federalism on green financing and environmental quality in China between 2000 and 2020. Using principal component analysis (PCA) in STATA, the environmental quality index and green financing (GF) model were created. The fully modified ordinary least squares (FMOLS) and dynamic panel ordinary least squares (DOLS) approaches were used to assess the baseline model’s robustness. The findings indicate that there is a beneficial and noteworthy impact on environmental quality from the decentralization of fiscal expenditure and GF. Moreover GF is positively and significantly correlated with green technological innovation (GTI) and fiscal decentralization (FD), both of which are identified as GF accelerators. The association between the environment and the interaction impact of GF and green technology (GT) is favorable and noteworthy. Based on this study, the Chinese Government should expedite the decentralization process to improve GF and, eventually, environmental quality. Fiscal expenditure decentralization (F.DE) and GT play a significant role in promoting environmentally friendly technologies, optimal energy use, and innovations in the effort to create the least polluting economy.