Local Fiscal Pressure and Firm's Energy Intensity with Vertical Fiscal Imbalance:Evidence from Income Tax Sharing Reform
This study examines the impact of vertical fiscal imbalance on a firm's energy intensity by constructing a theoretical model that considers the interactions between central and local governments and firms.Specifically,we investigate how the behavior of local governments,which is influenced by vertical fiscal imbalance,affects a firm's energy intensity in the context of income tax sharing reform.To provide empirical evidence,we use a difference-in-differences identification strategy and utilize data from the 1998-2012 China Industrial Enterprise Pollution Emission Database.Our results show that vertical fiscal imbalance has a significant positive impact on the energy intensity of Chinese firms,and this finding is robust to robustness and validity analyses.Furthermore,our study highlights that long-term fiscal imbalance affects the input decisions of firms through energy factor markets and labor costs,ultimately affecting the energy intensity of firms.Overall,our study provides both theoretical and empirical evidence to support the development of a more effective energy and environmental governance system focusing on fiscal institutions in China.The government should recognize the institutional causes behind the distortion of the energy factor market and,address public governance issues from the fiscal system design perspective,and leverage the incentive and coordination role of fiscal tools.
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