Mitigating the conflict between economic and green development: Emission reduction mechanisms for vertical transfer payments

Abstract

The impact of government behavior on emission reductions has gained widespread attention, but fewer studies have explored the relationship between vertical transfers (VT) and carbon emissions (CE). We empirically test the CE reduction mechanism of VT by constructing two‐way fixed effects models based on data of 278 Chinese cities from 2005 to 2020. Empirical analysis finds that VT reduce the taxing efforts of local governments and the tax burden of enterprises, promote the upgrading of enterprises' production technology, and ultimately reduces CE. Conclusions suggest that transfer payments should be actively used to establish preferential policies to assist enterprises in reducing CE.