Decoupling the double jeopardy of climate risk and fiscal risk: A perspective of infrastructure investment

The impact of climate risks on infrastructure may damage the security of the fiscal system. Using the climate disaster-related data of 31 provinces in China from 2005 to 2018, a climate risk index was constructed, and a two-way fixed-effects panel model was used to measure the impact of climate risk on fiscal risk through infrastructure investment. Studies have shown that climate risks will worsen fiscal risks by accelerating infrastructure depreciation, but by expanding the scale of infrastructure investment, increasing public funding sources, increasing local participation, and strengthening investment in low-carbon sectors, the risks can be effectively mitigated. The analysis of heterogeneity shows that the level of economic development and degree of climate vulnerability of a region are important influencing factors; the eastern region and coastal areas are relatively less affected, whereas the central and western regions, inland areas, ecologically fragile areas, and Yangtze and Yellow River basins are more affected. By optimizing infrastructure investment strategies, policymakers can effectively reduce the impact of climate risk on the fiscal system, especially in vulnerable areas.