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

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.