Under fiscal revenue decentralization, local tax competition can cause green taxes to inadvertently increase regional pollution.

In the race for local growth, decentralization can backfire. Evidence from China shows that when provinces gain more fiscal autonomy, they compete fiercely for investment. If one region strictly enforces green taxes, carbon-heavy enterprises simply pack up and move to neighboring areas with laxer rules. This "race to the bottom" creates pollution havens. However, when local governments achieve true fiscal self-sufficiency, their interests finally align with long-term carbon reduction, showing that the design of local power dictates environmental survival.