The Impact of Digital Economy Development on Local Fiscal Pressure in China: Evidence from TWFE and Descriptive Tree-Based Analysis

Using a panel of Chinese prefecture-level cities, we examine how digital economy development is associated with local fiscal pressure over 1996–2023. We construct a municipal digital economy index mapped to the 2023 CAICT framework and document its construction, weighting, and validation. Our primary evidence comes from two-way fixed effects (TWFE) regressions that control for city and year unobservables. We document a robust and stable negative association between the composite digital economy index and fiscal pressure, with particularly stable correlations for mobile phone penetration and internet users per 100 people. Moderation tests indicate that the association is stronger in cities with higher baseline fiscal pressure. To summarize nonlinearity descriptively, we use a shallow regression tree (depth = 2) that identifies two salient split points (≈0.147 and ≈0.505) and shows monotonic differences in average fiscal pressure across digital development stages; these splits are treated as descriptive rather than formal threshold estimates. We discuss policy implications proportionate to effect magnitudes and provide replication materials to enhance transparency.