Does Fiscal Efficiency Affect Green Total Factor Productivity: Evidence Based on Spatial Panel Data Models

ABSTRACT This research aims to investigate whether fiscal efficiency promotes green total factor productivity (GTFP) in China. To this end, we used multi‐source data and adopted productivity index approaches to measure GTFP and fiscal efficiency scores of 284 Chinese cities and then applied a spatial econometric model to examine the impact of fiscal efficiency on GTFP. The main findings of this study are as follows: (1) Overall GTFP scores showed an N‐shaped trend during the sample period. Specifically, they first rose, then decreased, and finally went up. (2) The dynamic average fiscal efficiency scores of Chinese cities exhibited an upward trend with fluctuations. The spatial distribution of the fiscal efficiency scores of 284 cities showed that overall the eastern and central cities had the highest scores, followed by the western and northeastern cities. (3) The results of the spatial lag panel data model revealed that the spatially lagged term of GTFP was significantly positive, indicating that spatial spillovers of GTFP could not be ignored. Otherwise, it may lead to biased conclusions. It implies that improvements in the GTFP of neighboring cities contribute to promoting the GTFP growth of the own city. Moreover, the impact of fiscal efficiency on GTFP was verified to be significant and positive, indicating that fiscal efficiency improvement could significantly promote China's high‐quality development measured by GTFP. In addition, increases in urbanization level, economic level, education level, industrial structure, and innovation level had positive effects on GTFP, while there was a U‐shaped relationship between environmental regulation and GTFP. Last, several tailored policy recommendations were proposed.