How does fiscal transparency reduce SO₂ emissions? Treating at the source

Sulfur dioxide is one of the main pollutants in the atmosphere. In China, how to reduce SO₂ emissions is the focus of pollution control to achieve sustainable development. Fiscal transparency (FT), is an effective way to improve the efficiency of financial operations. It can enhance enterprises’ environmental regulation and emission reduction orientation and achieve SO₂ emission reduction at the source. Based on the current research, this paper further analyzes the effect of FT to improve environmental protection and control pollution. It has enriched the role of government finance in pollution control and emission reduction. In terms of gathering information, this paper uses 282 full-scope fiscal transparency scores of Chinese governments in 2013–2021, released by the Tsinghua Research Group. In terms of the nature of the data, it is comprehensive and in line with the actual development situation of this region. In terms of research methods, the spatial econometric model is used first. This paper uses the spatial geographic and economic distance matrices to test the spatial correlation and spatial spillover between fiscal transparency and industrial SO₂ emissions. The empirical results show that: (1) The improvement of FT will significantly reduce the regional SO₂ emission level. An increase of 1% in FT will suppress SO₂ and reduce it by about 0.308%. (2) FT has a significant negative spatial spillover effect. For every 1% increase of FT in this city, SO₂ in geographically similar areas will decrease by about 0.161%, and SO₂ in economically similar areas will decrease by about 0.295%. (3) Affected by COVID-19, FT will increase the emission of SO₂. A 1% increase in FT will increase SO₂ emissions by 0.125%. (4) According to the analysis of different periods, the effect of FT on SO₂ emission reduction is mainly reflected in the early stage of financial information disclosure. (5) Through the mediation mechanism test, this paper finds that the industrial structure has a reverse mediating effect on SO₂, and the improvement of FT can reduce SO₂ by promoting the optimization of the industrial structure.