Government Guidance Funds, Vertical Fiscal Imbalance, and Regional Green Innovation

Green innovation serves as a critical pathway for achieving the goals of "carbon peak and carbon neutrality". While the existing literature has mostly focused on debt-based green financial instruments, such as green credit and green bonds, the role of equity-based instruments, particularly green government guidance funds, in driving regional green innovation has received comparatively less attention. Using data from the Zero2IPO Private Equity Database and a panel of 300 prefecture-level cities in China from 2007 to 2023, this study employs a two-way fixed-effects model to empirically analyze the impact of government guidance funds on regional green innovation and to explore the moderating effect of vertical fiscal imbalance.The results indicate that government guidance funds significantly promote regional green innovation. Mechanism analysis reveals that these funds exert their positive influence indirectly through two primary channels: by incentivizing local governments to increase expenditures toward energy conservation&environmental protection and science&technology innovation, and by amplifying the scale of regional risk capital. Moderating effect analysis shows that vertical fiscal imbalance itself contributes to regional green innovation and, moreover, strengthens the innovation-promoting effect of government guidance funds.Heterogeneity analysis based on fiscal, financial, and environmental regulation dimensions reveals that the green innovation-promoting effect of government guidance funds is more pronounced in cities with higher local fiscal pressure, greater reliance on land finance, and more abundant credit resources. However, this positive effect is observed only in regions with stringent environmental regulations.This study contributes to the literature on the "proactive government" and green finance. It provides theoretical insights and practical implications for local governments to synergistically and adaptively employ both conventional and innovative green fiscal and financial instruments to facilitate the green transition of the economy, advance the "dual carbon" goals, and promote sustainable development.