Impact of fiscal expenditure stress on green transformation risk: evidence from China education authority reform

Abstract

Ongoing fiscal support is a crucial assurance for achieving green development, while the increasingly prominent fiscal expenditure stress has been subjected to a great challenge in achieving green transformation. Based on China’s education authority reform as a quasi-natural experiment, this study uses green total factor productivity to represent urban green development, which has been widely used in the literature, and reveals how local government fiscal expenditure stress affects green total factor productivity. It is found that local fiscal stress significantly decreases the green total factor productivity of cities. This effect is particularly pronounced for resource-based cities, cities with laxer environmental regulations, and cities under greater pressure to promote and develop their economies. Moreover, it is confirmed that it is not the revenue-raising effect but rather the expenditure reduction effect that is at play. Specifically, local governments have reduced environmental protection expenditures and green subsidies, leading to a decline in the green innovation capacity of cities and corporations. Finally, based on the above findings, policy implications are provided to reduce the risk of green transformation from the perspective of policymakers.

Appendices

Appendix A

Specifically, the ML productivity index is based on the directional distance function denoted by $\vec{D}\left( {L,K,E,Y,CO2} \right) = sup\left\{ {\beta :\left( {\left( {L,K,E,Y,CO2} \right) + g \cdot \beta } \right) \in T} \right\}$. T is the production technology, and g is the vector of direction. In this study, we set $g = \left( {Y, - CO2} \right)$, which means desirable output is pursued to increase and undesirable output is pursued to decrease. The output-oriented Malmquist–Luenberger (ML) productivity index is as follows:

$$\begin{aligned} & ML^{t,t + 1} \left( {L^{t} ,K^{t} ,E^{t} ,Y^{t} ,CO2^{t} ,L^{t + 1} ,K^{t + 1} ,E^{t + 1} ,Y^{t + 1} ,CO2^{t + 1} ,} \right) \\ \quad = \left[ {\frac{{1 + \vec{D}^{t} \left( {L^{t} ,K^{t} ,E^{t} ,Y^{t} ,CO2^{t} } \right)}}{{1 + \vec{D}^{t} \left( {L^{t + 1} ,K^{t + 1} ,E^{t + 1} ,Y^{t + 1} ,CO2^{t + 1} } \right)}} \times \frac{{1 + \vec{D}^{t + 1} \left( {L^{t} ,K^{t} ,E^{t} ,Y^{t} ,CO2^{t} } \right)}}{{1 + \vec{D}^{t + 1} \left( {L^{t + 1} ,K^{t + 1} ,E^{t + 1} ,Y^{t + 1} ,CO2^{t + 1} } \right)}}} \right]^{1/2} \\ \quad = \frac{{1 + \vec{D}^{t} \left( {L^{t} ,K^{t} ,E^{t} ,Y^{t} ,CO2^{t} } \right)}}{{1 + \vec{D}^{t + 1} \left( {L^{t + 1} ,K^{t + 1} ,E^{t + 1} ,Y^{t + 1} ,CO2^{t + 1} } \right)}} \\ \quad \times \left[ {\frac{{1 + \vec{D}^{t + 1} \left( {L^{t} ,K^{t} ,E^{t} ,Y^{t} ,CO2^{t} } \right)}}{{1 + \vec{D}^{t} \left( {L^{t} ,K^{t} ,E^{t} ,Y^{t} ,CO2^{t} } \right)}} \times \frac{{1 + \vec{D}^{t + 1} \left( {L^{t + 1} ,K^{t + 1} ,E^{t + 1} ,Y^{t + 1} ,CO2^{t + 1} } \right)}}{{1 + \vec{D}^{t} \left( {L^{t + 1} ,K^{t + 1} ,E^{t + 1} ,Y^{t + 1} ,CO2^{t + 1} } \right)}}} \right]^{1/2} \\ \quad = EC^{t,t + 1} \times TC^{t,t + 1} \\ \end{aligned}$$

(4)

Specifically, and respectively denote the inputs, desirable output as well as undesirable output in adjacent periods t and t + 1. means the efficiency increases, and means the efficiency decreases. The Malmquist–Luenberger productivity index can be decomposed into two components, and, measure the efficiency change and technology change, respectively.

Appendix B

We examine the relationship between education expenditure and GTFP and the result is shown in Fig. 

Fig. 5

Relationship between education expenditure and GTFP

5. Figure 5 shows GTFP is negatively associated with the ratio of education expenditure to fiscal expenditure, indicating that cities have lower levels of green development when local government spend more on education. What’s more, we also examine the relationship between the scale of environmental expenditures and GTFP in Fig. 

Fig. 6

Relationship between environmental expenditure and GTFP

6, finding that a larger scale of environmental expenditures is beneficial to urban green transformation. Our explanation of the results in Figs. 5 and 6 is shown below.

First of all, according to the theoretical logic of this paper, the increase of education expenditure target has caused a steep increase of fiscal expenditure pressure in the short term, and in order to cope with the increase of education expenditure, under the condition of limited “open source” of fiscal revenue, “cutting down” of fiscal expenditure and adjusting the structure of fiscal expenditure will be important channels. This paper finds that education expenditure is negatively correlated with GTFP and environmental expenditure is positively correlated with GTFP. The logic is that in order to cope with the pressure of education expenditure, local governments may reduce environmental protection expenditure, thus reducing GTFP.

Second, our results do not imply that we deny that human capital promotes GTFP. We would like to declare that the role of human capital in promoting GTFP is not equivalent to the role of education expenditure. On the one hand, it takes a long time for education investment to promote human capital upgrading, and the short-term growth of education expenditure, which is the focus of this paper, can hardly play a long-term role in human capital upgrading, and thus can hardly provide human capital support for GTFP enhancement. According to Ahmed et al. (2020), there is a strong correlation between human capital and sustainable development over a sizable period of time (1970–2016).

Third, China, as a developing country, has a bias in educational investment toward primary education rather than higher education. Wang et al. (2023) find that not all human capital contributes to GTFP, only higher education human capital contributes to GTFP, and primary education human capital even reduces GTFP. The National Medium- and The National Medium- and Long-Term Education Reform and Development Plan (2010–2020) stipulates that compulsory education is fully included in the scope of financial protection, and local governments at all levels are responsible for its implementation. Higher education implements a mechanism to raise funds mainly by the organizers' input, the recipients' reasonable share of training costs, and the schools' establishment of funds to accept social donations. In other words, the growth target of education expenditure of local governments reflects more the requirement for the growth of primary education investment, thus finding a negative correlation between education expenditure and GTFP growth. And it should be emphasized that this paper focuses on the relationship between education expenditures pressure and GTFP rather than the relationship between education expenditures and GTFP.