Fiscal decentralization can activate enterprise development kinetic energy, and has an important driving role in low-carbon transformation of heavily polluted enterprises. Using the data of heavy polluting enterprises listed in A-share companies from 2008 to 2022, article empirically examines low-carbon transformation effect of fiscal decentralization in heavy polluting enterprises and its mechanism of action. It is found that fiscal decentralization significantly promotes low-carbon transition of heavy polluting enterprises. Analysis of impact mechanism shows that, on one hand, from perspective of technological innovation, fiscal decentralization promotes low-carbon transformation by promoting the heavy polluting enterprises to increase quality of green technological innovation, efficiency of green technological research and development, and efficiency of green results transformation
on other hand, from perspective of management innovation, fiscal decentralization promotes low-carbon transformation through pathway of enhancing green management innovation. Heterogeneity analysis shows that promotion effect of fiscal decentralization on low-carbon transition of heavy polluting enterprises is more significant in non-new energy enterprises, enterprises with lower audit quality, and enterprises located in inland cities or non-transportation hub cities. In addition, when the green technology R&D efficiency index ≤0.3373, the promotion effect of fiscal decentralization on low-carbon transition of heavy polluting enterprises is not obvious, when 0.3373 <
green technology R&D efficiency index <
0.8497, fiscal decentralization gradually promotes the low-carbon transition of heavy polluting enterprises, and when the green technology R&D efficiency index ≥0.8497, fiscal decentralization substantially promotes the low-carbon transition of heavy polluting enterprises. We assesses economic consequences of fiscal decentralization in terms of sustainable development and provides micro-level empirical evidence on promotion mechanism of low-carbon transition.