Fiscal decentralization and energy intensity: evidence from a quasi-natural experiment of VAT revenue-sharing reform in China

• Published in: Journal of public policy Vol. 45; no. 1; pp. 23 - 44
• Main Authors: Pang, Yumeng, Wang, Mengmeng
• Format: Journal Article
• Language: English
• Published: 01.03.2025
• ISSN: 0143-814X; 1469-7815
• DOI: 10.1017/S0143814X24000254

The impact of fiscal decentralization on energy intensity has been a long-standing subject of interest and debate. However, to date, there has been a notable absence of studies delving into the effects of fiscal decentralization on energy intensity from the vantage point of tax sharing. This investigation explores the effects of China’s value-added tax (VAT) revenue-sharing reform on energy intensity using prefecture-level city data from 2006 to 2020. Results show a correlation between an increased proportion of VAT revenue sharing and higher regional energy intensity. Heightened competition among local governments amplifies this impact, while environmental regulations and technological innovation mitigate it. Our findings contribute to a more scientifically grounded formulation of the revenue-sharing ratio between central and local governments, aiming to reduce local energy intensity.