Analyzing Green Growth Efficiency in China and Investigating the Spatial Effects of Fiscal Decentralization: Case Study of Prefecture-Level Cities

Due to inadequate resource availability and environmental contamination, the Chinese government has placed a high priority on ecological civilization in recent years. Emphasis has been placed on the environmentally friendly conversion of the economy and the sustainable progress of society. China has established a fiscal decentralization system that divides financial responsibilities between the central and local governments. Due to their proximity advantage, local governments, as agents of the central government, can effectively deliver public services, optimize resource allocation, encourage innovation in green science and technology, and facilitate green growth in the region. However, local governments may exhibit myopic behaviors that impede the sustainable development of the region in their pursuit of regional growth ambitions. Therefore, this paper aims to investigate whether the institutional factor of fiscal decentralization promotes or inhibits the efficiency of green development in China. Using data from Chinese prefecture-level cities between 2010 and 2020, this paper presents the SBM-DDF model to measure the green growth efficiency ($GGE$) in cities. The study then analyzes the spatial impact of fiscal decentralization on $GGE$ using a dynamic panel model and a dynamic SAR model. The empirical results show that China’s green development level has steadily increased in recent years, and $GGE$ reflects climbing pressure and regional differences. Secondly, increasing the vertical fiscal decentralization of local governments promotes $GGE$ growth, while increasing fiscal freedom hinders it. Additionally, fiscal decentralization in neighboring cities also affects local $GGE$, with spatial spillover effects. Finally, the impact of fiscal decentralization on $GGE$ is spatio-temporally heterogeneous. This paper expands on the research regarding the factors that affect the efficiency of green growth in China, specifically focusing on institutional factors at a theoretical level. Additionally, this paper provides targeted policy recommendations based on the aforementioned findings. These recommendations hold great practical significance for China in improving its fiscal decentralization system and achieving sustainable economic development.