Can Government Budget Management Reconcile Environmental Governance with Sustainable Economic Development?

Abstract

Government budget management serves as a critical enabler for the development of a green economy and represents an essential pathway to promote sustainable urban development. The government budget delineates the scope and direction of governmental activities, while the advancement of a green economy heavily relies on the support of budgetary funds. Adopting the perspective of government budget management capabilities, this study examines the budget deviations across 288 prefecture-level cities in China from 2007 to 2021. By constructing a double fixed-effects model, we assess whether government budget management can effectively balance environmental governance with sustainable economic development, thereby fostering green economic growth. The findings indicate that government budget management indeed achieves this balance, with revenue management playing a more significant role compared to expenditure management. Mechanism analyses reveal that at the revenue level, government budget management regulates local economic behavior through tax constraints, while at the expenditure level, it drives green economic development by promoting technological innovation. Heterogeneity analysis further demonstrates that geographical differences, humanistic environment factors, and the degree of marketization significantly influence the development of the green economy. Based on these insights, this paper proposes targeted policy recommendations aimed at mitigating the tension between environmental governance and sustainable economic development and facilitating the attainment of green economic objectives ultimately.

1. Introduction

Since the beginning of the new century, China’s economy has made remarkable achievements, with its total economic output ranking second in the world and some of its economic indicators having reached the threshold of high-income countries [1]. Environmental pollution seriously hinders the realization of sustainable economic development [2]. In 2012, China’s economic growth rate dropped to no more than 8%, and economic development started to reach an excellent stage, where resource and environmental endowments were incorporated into the constraints for measuring the quality of economic growth [3]. In 2015, the Paris Agreement entered into force, requiring each Party to take domestic mitigation measures to reduce national emissions and adapt to climate change. General Secretary Xi Jinping pointed out: “The money that should be spent on ecological environmental protection must be spent, and the money that should be invested must not be saved”. In 2024, The “Government Work Report” proposed that “the idea of clean water and green mountains are the golden mountains should be deeply practiced, and synergistically push forward the idea of reducing carbon, pollution, expanding greenery, and growth, so as to build a beautiful China with harmonious coexistence between man and nature”. Based on the new development stage, how to balance environmental governance and sustainable economic development has become a problem we must face.

Both the government and the market play an important role in economic growth. At present, global economic development is facing great uncertainty, and the market has limited ability to regulate economic transformation, so it is necessary to regulate economic development through strong administrative control ability. The government budget embodies the country’s strategies and reflects the scope and direction of government activities. Not only sustainable economic development but also ecological and environmental governance cannot be achieved without the support of budget funds. According to data released by the Ministry of Finance, central financial allocations for air pollution prevention and control, water pollution prevention and control, special funds for soil pollution prevention and control, and rural environmental improvement funds are projected to reach CNY 34 billion, CNY 26.7 billion, CNY 4.4 billion, and CNY 4 billion, respectively, in 2024 [4]. Giving full play to the supporting and guiding role of government budget management in environmental governance is of great significance for promoting environmental governance and sustainable economic development. The budget management system regulates government behavior through the systematic control of government revenue and expenditure. Existing literature generally pays attention to the government budget management system itself, mainly focusing on the driving factors of the development of the modern budget management system and the future development direction, but few studies involve the consequences of budget management, especially the research on the impact of budget implementation deviation on economic and social development, which is relatively scarce. Whether government budget management can manage environmental governance and sustainable economic development has not been verified. Further studies on the relationship between government budget management and regional imbalance in green economy development are rare.

Therefore, this study focuses on the dual impact of the improvement of budget management ability on environmental governance and high-quality sustainable economic development. The concept of a budget management system can be categorized into broad and narrow senses, primarily encompassing two levels: legislative and administrative [5]. In the broad sense, the budget management system includes both the administrative budget management system and the legislative budget oversight system. In the narrow sense, it focuses solely on the administrative budget management system, which mainly involves the scientific rigor of budget preparation and the enforceability of the budget. The deviation between the budget and final accounts serves as a critical indicator for evaluating the government’s capacity in budget preparation and execution, and it effectively measures the efficiency of government budget management [6]. The deviation degree of budget and final accounts is an important index to measure the ability of national financial budget preparation and implementation and can effectively measure the ability of government budget management. Currently, the budget management systems adopted by countries worldwide can primarily be categorized into three types: federal, unitary, and mixed models. Irrespective of the specific system in place, budget management aims to achieve the optimal allocation and utilization of resources over a defined period through the systematic planning and control of revenues and expenditures. Specifically, considering the characteristics of local government budget management in China, this paper selects budget revenue deviation and budget expenditure deviation as proxy indicators to measure the government’s budget management ability from the perspectives of budget revenue and budget expenditure, and uses the green total factor productivity of 288 cities at or above the prefecture level in China from 2007 to 2021 as a measure of green economic development. Under the dual objectives of economic growth and environmental protection, this paper examines the impact of the improvement of government budget management ability on the current high-quality sustainable development of China’s economy and the transmission mechanism behind it. At the same time, the paper systematically analyzes the heterogeneity of the relationship between government budget management level and green economy development from the dimensions of regional difference, human environment, and marketization level.

The structure of the paper is as follows: Section 2 presents a review of the relevant literature. Section 3 establishes the theoretical framework and proposes the research hypotheses. Section 4 elaborates on the research design. Section 5 describes the methodology for empirical analysis. Finally, the conclusions and policy implications are summarized and discussed.

2. Literature Review

2.1. Government Budget Management

Focus on the field of government budget management. The budget reflects the will of the Party, always serves and submits to the overall cause of the Party and the state, is an important means for the government to govern and regulate the economy, and provides financial support and institutional guarantee for the country’s modernization drive [7]. The existing literature on government budget management mainly focus on three aspects.

One is to discuss the power distribution in modern budget management systems [8,9]. Throughout the whole budget process, the legislative and administrative organs and other diversified budget subjects play different roles in the formation and operation of the budget [10]. The legislature improves fiscal transparency [11] and budget performance [12] through effective budget supervision. Administrative agencies prepare budget plans, and the degree of adoption of budget plans is an important standard to measure the political success of administrative agencies [13]. The second is about the formulation of budget policy and the driving factors of the reform of the modern budget management system [14,15]. In the process of making budget policies, in order to achieve sustainable financial development, the government must consider both revenue and expenditure when making budget policies, and the reduction of government expenditure must be greater than the increase in tax revenue [16]. As for the driving factors of modern budget management system reform, the development of a modern budget management system hides complex social production relations [17]. The constitutional system, property rights system, and citizens’ consciousness of property protection are the political foundation for the development of modern budget system [18]. The economic crisis and the post-crisis tight fiscal policy are the main factors that lead to the reform of the budget system [19]. The third is the study of government budget deviation, which can be roughly divided into revenue budget deviation and expenditure budget deviation. At the national level, budget deviation is mainly manifested as the coexistence of “overrevenue” and “overspending” [20]. At the local level, deviations from the revenue budget are still represented by large “overrevenue”, and deviations from the expenditure budget are represented by “underexpenditure” [21]. Economic fluctuations [22], electoral cycles [23], and officials seeking maximum discretionary power [24] are the main reasons for the deviation. At present, there is little attention on the impact of government budget management, especially budget deviation, on economic and social activities, and a few studies mainly focus on the impact of budget deviation on government financial performance [25], regional economic stability [26], and government debt scale [27].

2.2. Environmental Governance and Sustainable Economic Development

Concerning the interplay between environmental governance and sustainable economic development, scholars unanimously agree that economic growth is a critical determinant of environmental performance and a driving force behind the advancement of the Sustainable Development Goals [28]. Many studies highlight that environmental pollution constitutes a substantial impediment to achieving sustainable economic development [29,30]. It is imperative to cultivate a mutually reinforcing relationship between ecological conservation and economic operations [31], ensure the harmonization of economic growth with environmental stewardship [32], and proactively design comprehensive strategies that promote sustainable economic expansion while minimizing adverse environmental effects. The green economy acts as a strategic paradigm that prioritizes both diminishing environmental degradation and fostering sustainable economic activities, aiming to achieve a balance among economic prosperity, efficient resource utilization, and environmental protection [33]. To achieve the goal of balancing the economy, resources, and environment, China has gradually built an environmental regulation system, enacted a series of environmental protection laws, implemented market incentive measures and other ways to reduce pollutant emissions [34], encouraged enterprises to use resources rationally and efficiently, and promoted the green transformation of China’s economy.

The current body of research on the green economy predominantly focuses on two core aspects. First, assess the advancement of green economic development. Previous studies have analyzed green economic development from multiple perspectives, including provincial, municipal, and cross-sectoral levels. In certain cases, principal component analysis and the entropy method are utilized to establish an index system for green economic development, thereby calculating a composite index that represents the level of green economic progress [35]. Alternatively, methodologies such as Stochastic Frontier Analysis (SFA) and Slack-based Measure (SBM), which account for non-desirable outputs, are applied to evaluate the status of green economic development. Second, determine the factors affecting green economic development. Significant strides have been made in understanding the determinants of green economic development. According to existing literature, external openness, innovative human capital [36], tax policies [37], geographical location, and energy structure [38] all exert notable influences on the development level of the green economy.

The marginal contribution of this study may be as follows: First, from the perspective of local government budget management, based on the phenomenon of “over-revenue” and “short expenditure” of local government budgets in China, this paper studies the impact of government budget management on environmental governance and sustainable economic development from the perspective of local government budget deviation. The research scope of government budget management is expanded. Second, existing studies have examined the driving factors of green economy development from various perspectives. While some studies emphasize the influence of government fiscal expenditure on green economy development, there remains a research gap regarding the perspective of government budget management capability. This study elucidates the impact of government budget management capability on green economy development and its underlying mechanism, thereby providing theoretical support and policy recommendations for fully leveraging the regulatory function of government budget management in promoting green economy development and accelerating the Chinese-style modernization of harmonious coexistence between humans and nature.

3. Theoretical Analysis and Research Hypothesis

Based on Marx’s theory of ecological civilization, the theory of green growth reveals the inherent unity of revenue growth and environmental protection, holding that “protecting productivity requires protecting the natural environment, and improving productivity requires improving the natural environment”, negating the traditional view that economic growth and pollution control are opposite. It can be seen that promoting the transformation from traditional economy to green economy is the road that China must take to realize the overall layout of “five-in-one”. By prioritizing ecology and resource conservation as its goals, the development of the green economy enables us to effectively overcome the constraints imposed by natural resources and the ecological environment on economic growth, thereby achieving sustainable economic development. In Keynesian economics, market attractiveness and demand can be effectively controlled by government involvement. The central government and local governments at all levels exert significant influence on economic operations through budgetary actions, and China’s economic development exhibits a more pronounced policy-oriented approach. Green budget principles integrate environmental and sustainable development objectives into the budget formulation and implementation processes, ensuring that fiscal policies and expenditure decisions support the achievement of ecological protection and the sustainable use of resources. The concept of green budgeting has progressively emerged as a critical assessment tool in public finance and has increasingly drawn attention from policymakers and the general public. Government supervision can effectively reduce the amount of pollution discharged by enterprises and make the economy develop in the green direction [39]. The government can formulate and implement relevant policies and plans, such as supporting the development of green industries and encouraging the research of new energy sources, to clarify the goals and directions of economic development, and guide more social groups to join in the development of green economy [40]. Government action is, to a large extent, reflected in the government budget. Government budget is the carrier of government behavior, which can deeply reflect the activity arrangements of government departments.

Through the above discussion, hypothesis 1 is put forward: government budget management can promote green economic growth, that is, government budget management can take into account environmental governance and sustainable economic development.

Tax revenue is the primary source of government budget income. Taxation is an effective means of government budget management. Tax policy occupies an important position in the national macro-control tool. Local governments enhance tax constraints to regulate local government behavior, aiming to achieve a win-win situation between environmental governance and sustainable economic development. According to the principle that “more pollution means higher taxes, less pollution means lower taxes, and no pollution means no taxes”, the government not only imposes environmental taxes on polluting enterprises but also introduces various preferential tax policies. For example, if the quantity of chargeable pollutants emitted by enterprises is less than 50% of the national standard concentration, the environmental protection tax will be reduced by 50% to encourage the development of the green economy. On the one hand, these measures are designed to promote green economic development by transferring part of the income to energy-saving and emission-reducing enterprises through preferential tax policies, thereby reducing their tax burden and increasing corporate profits. On the other hand, increased pollution levels result in higher environmental tax. The government collects environmental protection taxes to reduce the profits generated by enterprises and phase out enterprises that consume excessive energy to achieve their goal of developing a green economy.

Through the above discussion, hypothesis 2 is put forward: on the side of revenue, government budget management takes into account environmental governance and sustainable economic development through tax incentives.

From the perspective of ecological economics, growth in society and economy, factor resource utilization, and ecological environmental protection are interconnected, which must be considered and promoted in a coordinated manner. Finance serves as a powerful tool for government macro-control, which can effectively control the negative externalities of economic development on environmental governance caused by the “tragedy of public land”. As an important part of fiscal expenditure, fiscal expenditure can not only provide direct support for the development of the green economy and ecological environmental protection, but also strongly support the development of various green industries and green technologies and fundamentally change backward and energy-intensive production technologies. On the one hand, the key to promoting the growth of a green economy that combines environmental governance and sustainable economic development lies in production technology. Green production technology is characterized by large investment, long research and development cycles, high risk, and obvious negative externality, which requires government financial subsidies to make up for the dilemma of low enthusiasm for private investment. On the other hand, green economic growth requires improving the efficiency of resource allocation. Due to the public goods attribute of green technological innovation and the influence of information asymmetry and other factors, the problem of market failure is likely to occur. Relying solely on the market mechanism, it is difficult for enterprises to effectively use various production factors and realize Pareto optimization in production. Therefore, it is necessary for the government to lead technological and industrial changes through fiscal science and technology expenditures, strengthen market expectations, and carry out the principle of green development, so as to establish an alternative model of green development that considers environmental governance and sustainable economic development.

Through the above discussion, hypothesis 3 is proposed: at the expenditure end, government budget management takes into account environmental governance and sustainable economic development through fiscal science expenditure.

4. Methodology

4.1. Model Design

This section investigates the complex interplay between government budget management and its impacts on both environmental governance and economic development. To analyze this relationship, the paper proposes a dual fixed-effect model designed to elucidate the influence of government budget governance on green economic development. The dual fixed-effect model can simultaneously control for individual and time heterogeneity, effectively reduce omitted variable bias, and enhance the robustness of the estimation results.

GTFP_it = α + β₁dv_r_it + δControls_it + λ_it + μ_it + ε_it

(1)

GTFP_it = α + β₂dv_e_it + δControls_it + λ_it + μ_it + ε_it

(2)

GTFP_it = α + β₁dv_r_it + β₂dv_e_it + δControls_it + λ_it + μ_it + ε_it

(3)

where the variables subscript i represents prefecture-level cities, t represents year, and the explained variable is GTFP_it, which represents the green total factor productivity of prefecture-level city i in year t. The core explanatory variable dv_r is the deviation degree of budget and final accounts income, and dv_e is the deviation degree of budget and final accounts expenditure. Controlit represents a series of control variables at the level of prefecture-level cities to control their characteristics; λ_i represents the fixed effect of prefecture-level city; μ_t represents the year fixed effect; ε_it is the random disturbance term. The coefficients β₁ and β₂ are concerned in this study, which means the influence of budget and final account revenue/expenditure deviations, respectively, on local green total factor productivity after controlling regional characteristics.

4.2. Measurement

4.2.1. Core Explanatory Variable

The government budget management level is measured by budget deviation degree, which is divided into budget revenue deviation and budget expenditure deviation according to the practice of most scholars [20,41]. The higher the index, the lower the level of government budget management. The specific calculation method is:

$$\begin{gathered} D\mathrm{eviation}\mathrm{degree}\mathrm{of}\mathrm{revenue}\mathrm{from}\mathrm{budget}\mathrm{and}\mathrm{final}\mathrm{accounts} \\ =\frac{\mathrm{Final}\mathrm{account}\mathrm{of}\mathrm{revenue}-\mathrm{budget}\mathrm{of}\mathrm{income}}{\mathrm{budget}\mathrm{of}\mathrm{income}} \end{gathered}$$

(4)

$$\begin{gathered} D\mathrm{eviation}\mathrm{degree}\mathrm{of}\mathrm{expenditure}\mathrm{from}\mathrm{budget}\mathrm{and}\mathrm{final}\mathrm{accounts} \\ =\frac{\mathrm{Final}\mathrm{account}\mathrm{of}\mathrm{expenditure}-\mathrm{budget}\mathrm{of}\mathrm{expenditure}}{\mathrm{budget}\mathrm{of}\mathrm{expenditure}} \end{gathered}$$

(5)

4.2.2. Core Explained Variable

The Slacks-Based Measure Malmquist–Luenberger (SBM-Malmquist) incorporates economic variables and undesired output emissions into efficiency analysis, helping to identify the negative environmental impacts of production activities and providing a powerful tool for comprehensively assessing the sustainability of economic activities. Therefore, this paper adopts SBM-Malmquist to measure urban green total factor productivity (GTFP) under variable returns to scale.

Indicators of input variables. First, the stock of physical capital. The method of perpetual inventory was adopted to measure. The formula is as follows:

K_it = I_it + K_i,_t−1 (1 − δ)

(6)

In this context, K stands for the physical capital stock, I indicates the total capital formation in the current year, and δ corresponds to the depreciation rate. The fixed asset investment price index for each year is adjusted to reflect constant prices based on the 2006 benchmark. Furthermore, regarding labor input, the city’s year-end employment data serves as the measurement indicator.

Output Variable Indicators: The output variables are comprised of anticipated and unanticipated outputs. More precisely, the anticipated output is quantified using GDP adjusted for constant 2006 prices. Additionally, unfavorable outputs encompass wastewater release, sulfur dioxide exhaust, and particulate matter emissions such as dust and soot.

4.2.3. Mechanism Variable

Refer to the existing literature and the existing relevant statistical data to select mechanism variables. From the perspective of budget revenue, tax constraint is selected as the mechanism variable to measure the impact of government budget revenue management on balancing environmental governance and sustainable economic development through tax incentives. The tax constraint index is specifically measured by the proportion of the annual tax revenue of prefecture-level cities in the gross regional product. From the perspective of budget expenditure, scientific expenditure is adopted as the mechanism variable to evaluate the impact of government budget expenditure management on achieving a balance between environmental governance and sustainable economic development through innovation promotion. The science expenditure indicator is measured by the proportion of science expenditure in the GDP of prefecture-level city financial expenditure.

4.2.4. Controls Variable

Considering that urban green total factor productivity is also affected by some other factors, the following control variables are set with reference to existing literature:

(1)

Economic Development Level (lnGDP): This is indicated by the natural logarithm of real per capita GDP.

(2)

Financial Development Index (Financial): It is calculated as the ratio of financial institutions’ year-end deposit and loan balances to regional GDP.

(3)

Foreign Investment Level (Foreign Investment): This is assessed using the proportion of actual foreign capital utilization relative to regional GDP.

(4)

Urbanization Rate (Urban): It is defined as the percentage of permanent urban residents in the total permanent population.

(5)

Human Capital Level: This is represented by the ratio of full-time college students at year-end to the total population.

(6)

Industrialization Level (Industry): It is determined by the share of industrial value-added output in regional GDP.

(7)

Infrastructure Development: This is quantified by the natural logarithm of public library book volumes per hundred people.

4.3. Descriptive Statistics

This paper uses the unbalanced panel data of 288 prefecture-level cities in China from 2007 to 2021 for empirical analysis. The sample data in the article are mainly from the China City Statistical Yearbook, the report of the two sessions of prefecture-level cities, and the Guotaian Database. To reduce the influence of outliers, some continuous variables are logarithmic in regression. The descriptive statistics of each variable are shown in

Table 1. Descriptive statistical analysis.

Variable	Observed Value	Mean	SD	Min	Max
GTFP	4296	1.001	0.029	0.928	1.125
dv_r	4296	0.055	0.059	0.000	0.381
dv_e	4296	0.086	0.057	0.010	1.230
lnGDP	4296	10.543	0.689	4.595	13.056
Financial	4296	2.366	1.230	0.560	21.302
Foreign	4296	0.0178	0.019	0.000	0.229
Urban	4296	0.532	0.164	0.115	1.001
Human	4281	0.185	0.025	0.000	0.195
Industry	4296	0.399	0.132	0.000	0.999
Infrastructure	4296	3.635	0.908	0.693	9.252

. After data processing, a total of approximately 4296 samples were retained, with some observations being incomplete. As shown in Table 1, the mean value of green total factor productivity is 1.001, indicating that during the observation period, overall production efficiency and technological levels have slightly improved when environmental factors are taken into account. The standard deviations for government budget revenue deviation and expenditure deviation are 0.059 and 0.057, respectively, suggesting that regional variations in revenue deviations are greater than those in expenditure deviations. Furthermore, the large gap between the maximum and minimum values of budget expenditure deviation highlights significant differences in regional management capabilities concerning budget expenditure control.

5. Empirical Results and Discussions

5.1. Baseline Return

Table 2. Whether government budget management can take into account environmental governance and sustainable economic development.

Variable	GTFP
	(1)	(2)	(3)	(4)	(5)
dv_r	−0.021 * (0.111)		−0.023 ** (0.011)		−0.024 ** (0.011)
dv_e		−0.019 * (0.010)		−0.019 * (0.010)	−0.019 * (0.010)
lnGDP			0.001 (0.003)	0.001 (0.003)	0.001 (0.003)
Financial			0.002 ** (0.001)	0.002 ** (0.001)	0.002 ** (0.001)
Foreign			−0.068 * (0.040)	−0.054 (0.040)	−0.064 (0.040)
Urban			0.011 (0.010)	0.010 (0.010)	0.011 (0.010)
Human			−0.115 * (0.060)	−0.121 ** (0.060)	−0.116 * (0.060)
Industry			−0.001 (0.008)	−0.001 (0.007)	−0.001 (0.008)
Infrastructure			−0.000 * (0.000)	−0.000 * (0.000)	−0.000 * (0.000)
Cons	1.016 *** 0.007	1.015 *** 0.007	1.001 *** (0.031)	1.000 *** (0.031)	1.004 *** (0.031)
City fe	YES	YES	YES	YES	YES
Time fe	YES	YES	YES	YES	YES
N	4296	4296	4281	4281	4281
R2	0.090	0.089	0.092	0.091	0.092

Note: Standard errors are in parentheses, and the standard error is clustered at the prefecture level. * p < 0.1, ** p < 0.05, *** p < 0.01, as in Table 3, Table 4, Table 5, Table 6 and Table 7. The same is below.

illustrates the empirical results of model (1) estimated through the FE method. Columns (1) and (2) reflect the regression outcomes considering only the fixed year effect and city individual effect without control variables, while columns (3) and (4) present the results after integrating control variables for both effects. The estimation results show that, regardless of whether control variables are added, the deviation degree of budget and final accounts income and expenditure are significantly negatively correlated with GTFP, indicating that the increase in the deviation degree of budget and final accounts will significantly reduce GTFP, while strengthening budget management and reducing the deviation degree of budget and final accounts will significantly improve GTFP. Based on the above results, the deviation degree of budget and final accounts income and expenditure is further put into Equation (3) for regression. The results are shown in column (5) of Table 2, and the regression results are consistent with those of single explanatory variable. Hypothesis 1 is tested. In terms of control variables, the degree of financial development is significantly positive, indicating that financial development is conducive to improving the green total factor productivity of cities. The reason may be that financial development can provide financial support for the green industry and promote the innovation of green technology and the development of green industry. The level of human capital is significantly negative, indicating that the increase in human capital exerts a negative influence on green total factor productivity (GTFP), potentially attributable to the significant situational dependence of human capital’s impact on GTFP. When the enhancement of human capital predominantly manifests at the primary and intermediate skill levels, such labor may exhibit greater reliance on traditional production modes. Consequently, human capital could become “locked” into inefficient production pathways, exacerbating resource misallocation and hindering the promotion of green technological innovation. Moreover, an increase in human capital does not inherently ensure that innovation and research and development (R&D) will prioritize green technologies; instead, it may be skewed toward non-green sectors. The level of infrastructure exhibits a significantly negative correlation with GTFP, suggesting that intensified infrastructure construction may lead to a decline in urban GTFP. Large-scale infrastructure investment often translates into dependency on traditional energy sources and industries, thereby constraining the replacement of these sectors by green technologies. In resource-based cities, infrastructure support predominantly serves energy-intensive industries, such as mining and heavy industry, further squeezing resources available for green industries. Additionally, traditional transportation and energy infrastructure consumes substantial quantities of highly polluting materials during construction, directly increasing carbon emissions and environmental pressure. For instance, the expansion of transport infrastructure may indirectly elevate carbon intensity by stimulating the use of fuel-powered vehicles. Regression results for other control variables are not significant and are not reported here.

5.2. Mechanism Testing

According to the above theoretical analysis, the government budget can affect local green total factor productivity through tax constraints and scientific and technological input. Therefore, we further identify the action path of the government budget affecting local green total factor productivity. The results are shown in columns (1) and (2) of

Table 3. Mechanism Tests.

Variable	Tax	Scientific
	(1)	(2)
dv_r	1.348 ** (0.532)
dv_e		−0.447 *** (0.131)
control variables	YES	YES
City fe	YES	YES
Time fe	YES	YES
N	4281	4281
R2	0.829	0.724

. Strengthening the management of the government revenue budget helps to relax the pressure of local tax burden, adjust with limited tax revenue, and promote high-quality economic development. Strengthening government expenditure budget management will help strengthen local input in science and technology innovation and promote green and healthy economic development. The regression results show that government budget management can improve the environmental governance level of local governments by strengthening tax constraints and increasing scientific and technological investment, which can alleviate the incompatibility between government economic development and environmental governance to a certain extent and help promote green economic development. Hypothesis 2 is tested.

5.3. Heterogeneous Analysis

5.3.1. Regional Difference Test

Considering the varying degrees of economic development and the norms of government revenue and expenditure behaviors across different regions, the influence of government budget management on green total factor productivity may exhibit regional differences. Consequently, the samples were subdivided into eastern, central, and western regions to conduct a regional heterogeneity test. The findings are presented in

Table 4. Test results by region difference.

Variable	Eastern Region	Eastern Region	Central Region	Central Region	Western Region	Western Region
	(1)	(2)	(3)	(4)	(5)	(6)
dv_r	0.014 (0.025)		−0.066 *** (0.019)		−0.038 ** (0.019)
dv_e		−0.034 (0.033)		−0.055 * (0.033)		−0.018 * (0.010)
control variables	YES	YES	YES	YES	YES	YES
City fe	YES	YES	YES	YES	YES	YES
Time fe	YES	YES	YES	YES	YES	YES
N	1505	1505	1484	1454	1261	1277
R2	0.091	0.092	0.119	0.130	0.100	0.089

. It is evident that enhancing government budget management can substantially increase green total factor productivity in the central and western regions, while it does not have a significant effect on the eastern region. The possible reason is that the more economically developed regions tend to have a higher level of budget management, so the budget deviation is not large, and the positive impact brought by strengthening budget management is smaller. However, in less economically developed regions, the problem of government revenue and expenditure behavior not complying with regulations is more serious, and the budget deviation is relatively obvious. Therefore, strengthening government budget management can improve green total factor productivity more significantly.

5.3.2. Human Environment Difference Test

Considering that different regions have different levels of education and sensitivity to government behaviors, government budget management may have a heterogeneous impact on green total factor productivity. According to the median education level, the sample was divided into two groups: low literacy level and high literacy level. The regression results are shown in columns (1)–(4) of

Table 5. Test results by Human environment difference.

Variable	Low Education Level Area	Low Education Level Area	High Education Level Area	High Education Level Area
	(1)	(2)	(3)	(4)
dv_r	−0.036 ** (0.016)		−0.010 (0.016)
dv_e		−0.025 * (0.015)		−0.022 (0.013)
control variables	YES	YES	YES	YES
City fe	YES	YES	YES	YES
Time fe	YES	YES	YES	YES
N	2141	2141	2140	2140
R2	0.104	0.101	0.148	0.150

. The results show that government budget management significantly improves the GTFP of cities with low literacy levels but has no significant impact on the GTFP of cities with high literacy levels. This is mainly because in the areas with higher education levels, the requirements for government budget management are higher, the budget deviation is smaller, and the incremental impact of strengthening budget management is also smaller. On the contrary, in areas with low education levels, the level of government budget management is low and the budget deviation is large. Strengthening budget management can bring better governance effects.

5.3.3. Marketization Level Difference Test

Considering that different regions have different levels of marketization and different degrees of dependence on government management, government budget management may have a heterogeneous impact on green total factor productivity. Based on the median marketization level, the sample is split into two categories: low marketization level and high marketization level. The regression outcomes are presented in columns (1)–(4) of

Table 6. Test results by Marketization level difference.

Variable	Low Marketization Level Area	Low Marketization Level Area	High Marketization Level Area	High Marketization Level Area
	(1)	(2)	(3)	(4)
dv_r	−0.033 ** (0.014)		0.002 (0.020)
dv_e		−0.058 * (0.034)		−0.012 (0.013)
control variables	YES	YES	YES	YES
City fe	YES	YES	YES	YES
Time fe	YES	YES	YES	YES
N	2140	1924	2141	2141
R2	0.155	0.172	0.199	0.200

. These findings indicate that government budget management substantially enhances the GTFP in cities with a lower marketization level, while it does not exert a significant effect on the GTFP of cities with a higher marketization level. This is mainly because in the regions with higher marketization level, the economic development is less affected by government intervention, and the strengthening of government budget management has less impact on the region. However, in regions with low marketization levels, economic development is more dependent on the government, so strengthening government budget management is helpful to improve the level of regional green development.

5.4. Robustness Analysis

5.4.1. Alternate Explanatory Variable

The deviation degree of budget and final accounts includes not only the deviation degree of budget and final accounts revenue and expenditure but also the deviation degree of total budget and final accounts (dv), which comprehensively reflects the deviation situation of government revenue and expenditure budget and final accounts, and its calculation formula is as follows:

$$\begin{gathered} D\mathrm{eviation}\mathrm{degree}\mathrm{of}\mathrm{total}\mathrm{budget}\mathrm{and}\mathrm{final}\mathrm{accounts} \\ =\left|\frac{(\mathrm{Final}\mathrm{account}\mathrm{of}\mathrm{expenditure}-\mathrm{Final}\mathrm{account}\mathrm{of}\mathrm{recenue})-(\mathrm{Expenditure}\mathrm{budget}-\mathrm{Recenue}\mathrm{budget})}{\mathrm{Expenditure}\mathrm{budget}-\mathrm{Recenue}\mathrm{budget}}\right| \end{gathered}$$

(7)

The regression results after replacing explanatory variables are shown in column (1) of

Table 7. Heterogeneity analysis.

Variable	GTFP
	(1)	(2)	(3)	(4)	(5)	(6)
dv	−0.003 *** (0.001)
dv_r		−0.024 ** (0.011)		−0.027 ** (0.012)
dv_e			−0.017 * (0.010)		−0.018 * (0.010)
Post						0.005 **
control variables	YES	YES	YES	YES	YES	YES
City fe	YES	YES	YES	YES	YES	YES
Time fe	YES	YES	YES	YES	YES	YES
N	4281	4281	4281	3996	4011	4214
R2	0.090	0.090	0.089	0.089	0.088	0.010

. The results show that the deviation degree of budget and final accounts is significantly negatively correlated with green total factor productivity, that is, strengthening government budget management and reducing government budget deviation levels are conducive to increasing regional green total factor productivity and promoting green development.

5.4.2. Winsorize

To mitigate the possible influence of extreme values on the regression results, a 1% tail trimming was conducted on both ends of the dependent variables, and the regression analysis was subsequently re-performed. The regression outcomes are displayed in columns (2) and (3) of Table 7, validating the robustness of the key findings in this study.

5.4.3. Delete Sub-Provincial Cities

Considering that the economic development level of sub-provincial cities is substantially distinct from that of regular prefecture-level cities, in order to avoid the potential impact of urban political and economic characteristics on local green total factor productivity, the samples associated with sub-provincial cities were removed and appropriately adjusted. The results are shown in columns (4) and (5) of Table 7. Both the deviation degree of budget and final accounts income and expenditure are significantly negatively correlated with green total factor productivity, and there is no significant difference from the previous baseline regression estimation conclusion, which further verifies that the baseline regression result is robust.

5.4.4. Endogenous Analysis

This study utilizes the local People’s Congress budget online supervision system as an instrumental variable for government budget management, with results displayed in column (6) of Table 7. In terms of relevance, the online supervision platform developed by the People’s Congress, which integrates information and digital technologies, has been increasingly adopted and expanded. This technology-driven approach to information connectivity effectively mitigates information asymmetry between the People’s Congress and the corresponding level of government during budget oversight. It also plays a critical role in addressing challenges within government budget management and is closely associated with improvements in the quality of such management. Regarding exogeneity, the pilot programs for the People’s Congress budget online supervision are relatively randomized, and their implementation is independent of green total factor productivity, thereby fulfilling the requirement for exogeneity. It should be emphasized that given the initiation of truly informatized and digitized budget online supervision only began in 2015, earlier practices in this area were insufficient to meaningfully resolve information asymmetry. As such, this paper focuses primarily on the post-2015 pilots of budget online supervision to evaluate the impact of governance on reducing information asymmetry.

6. Conclusions and Police Implication

6.1. Conclusions

This study investigates the relationship between government budget management and urban green economy development from the perspectives of budget revenue and expenditure, drawing on data from 288 prefecture-level cities in China over the period 2007–2021. The main conclusions are as follows: (1) Strengthening government budget management can significantly promote green economic growth by integrating environmental governance with sustainable economic development; (2) By enhancing tax constraints and increasing technological investment, government budget management plays a vital role in aligning environmental governance with sustainable economic development; (3) In central and western regions, as well as areas with lower education levels and less market-oriented economies, improving government budget management has a more noticeable impact on green total factor productivity, thus helping to achieve a balance between environmental governance and sustainable economic development.

6.2. Future Work

The budget is a crucial resource for the governing party, which can fully reflect the will of the party and the state, guide the scope and direction of government activities, and play a vital role in economic governance and regulation. The green economic development mode, which emphasizes environmental stewardship alongside high-quality sustainable growth, puts forward urgent requirements for the green fiscal transformation. The budget, as a key financial instrument, plays a foundational role in this economic transition. In 2017, the OECD Planet Summit launched the Paris Collaborative on Green Budgeting (PCGB), which collectively refers to the institutional framework and decision-making tools that assist governments in achieving environmental protection and sustainable development goals as green budgeting. The green budget is seen as a key step towards achieving the Paris Agreement climate goals, the Aichi biodiversity Targets, and the UN Sustainable Development Goals. Based on the above conclusions and the current realization of the green budget to help environmental governance and sustainable economic development, we propose the following policy recommendations.

First, strengthen the strategic planning of green economic development and refine the management framework for the green budget. The government should promptly release a comprehensive plan for green economy development, set clear objectives for green economy growth, and outline medium- to long-term development initiatives to guide both local administrations and businesses in promoting green economic practices. Additionally, the concept of “priority performance management” will be integrated into budgetary processes, prioritizing green economic development as a key area for financial support. Funds can be raised for ecological and environmental protection through mechanisms such as establishing dedicated funds and issuing bonds, thereby compensating for potential shortfalls in the government’s budgetary allocations for green economic development. Government departments should enhance collaboration to ensure balanced economic and environmental progress during the formulation and implementation of policies, thereby establishing a cooperative mechanism for economic development and environmental protection. In particular, less developed regions with limited administrative capacity can engage in national and international environmental protection projects via regional cooperation, thus securing technical support and financial assistance. At the same time, the performance evaluation system for green economic development should be improved and the indicator system for green economic development should be perfected. Through the analysis of heterogeneity, it is found that there are humanistic differences in different regions and differences in environmental governance and economic development; therefore, it is essential to consider the relationships between the central government and local authorities, as well as between general and specific aspects, and conduct precise budgeting and planning regarding the purpose, amount, and effectiveness of fund utilization in the budget expenditures of different regions.

Second, we can enhance the tax restraint mechanism and the incentive mechanism of green economy development by improving the legal system. The Environmental Protection Tax Law was implemented in 2018. However, the taxable pollutants listed in the Environmental Protection Tax Law are not comprehensive. It is suggested that carbon tax and other pollutants be included in the environmental protection tax. It is essential to strengthen supervision of law enforcement and seriously investigate the responsibility of the actors who destroy the ecological environment and waste resources through the mandatory law. Nevertheless, it is important to recognize that stringent environmental requirements will reduce the competitiveness of developing countries. Therefore, it is necessary to establish and improve the compensation mechanism for ecological and environmental protection based on the principle of “who protects who accepts compensation, who benefits who compensates”. Develop a dedicated R&D budget for the development of green technologies. At the same time, it is necessary to establish an incentive mechanism for the development of a green economy and encourage more resources to flow to green production and consumption by giving incentives, such as financial incentives and tax exemptions, to the main entities that achieve the goals of energy conservation, emission reduction, and economic development.

Finally, science and technology are the primary productive forces; thus, innovation should be promoted for green economy development. It is necessary to take advantage of the favorable opportunity of an innovation-driven development strategy to accelerate the training of innovative talents, optimize the professional skills training tasks of on-the-job personnel, improve the innovation awareness of employment personnel, and provide high-quality talents for the green development of the economy. It is necessary to accelerate the optimization and upgrading of industrial structures with the help of innovation-driven platforms, as well as encouraging the development of green industries and the use of clean energy. We should rely on technological innovation to promote the transformation of old and new productive forces. At the same time, we should promote the spillover of new technologies and new knowledge through industrial agglomeration, so as to give full play to the diffusion role of technological innovation, and achieve a win-win situation of environmental governance and high-quality and sustainable economic development.

6.3. Limitations and Potential Future Study Areas

Although this study provides both theoretical and empirical support for the influence of government budget management on green economy development, there are still limitations in the measurement of indices. Specifically, this paper employs budget deviation degree as an indicator to measure the government’s budget management capability. Although it is somewhat representative, budget management encompasses multiple stages, including budget preparation, approval, implementation, adjustment, and final accounts. The budget deviation degree primarily evaluates the government’s budget management ability during the preparation and implementation phases, neglecting discussions on final accounts and accountability mechanisms. This introduces certain limitations. In future research, with the continuous improvement of statistical data and methods, comprehensive indicators could be constructed to measure government budget management capabilities using more refined data, thereby providing stronger empirical evidence to promote sustainable urban economic development through effective government budget management. This study primarily investigates the role of government budget management in balancing environmental governance and sustainable economic growth. Future research could explore alternative econometric methods or datasets to evaluate existing pilot policies, further assess policy effectiveness, and refine and promote current policies. Finally, budget management involves multiple stakeholders, such as legislative bodies and auditing institutions. Legislative bodies possess extensive social influence, whereas auditing institutions offer professional technical support. Multi-stakeholder collaboration can enhance supervisory authority, improve problem rectification implementation, establish a complete supervisory feedback loop, and increase supervisory efficiency. Future studies should consider the role of the coordinated supervision mechanism in balancing environmental governance and sustainable economic development.