Abstract: Deepening the reform of the fiscal system is not only an inevitable requirement for the modernization of national governance, but also an institutional guarantee for promoting high-quality economic development in China. In terms of the typical characteristics of China’s fiscal system reform, the rational control of vertical financial imbalance is a strong driving force to promote high-quality economic development. Therefore, this paper takes the vertical fiscal imbalance as the entry point, and uses the panel data of 31 provinces in China from 2004 to 2020 to empirically test the impact of vertical fiscal imbalance on high-quality economic development and its reasonable range. The findings show that fiscal decentralization in China has a significant threshold effect on high-quality economic development with the changes of the level of fiscal vertical imbalance. From the national level, the optimal fiscal vertical imbalance to promote high-quality economic development is in the range of [0, 0.8517], and there are differences in different regions. When the degree of fiscal vertical imbalance exceeds a certain threshold value, the negative effect of fiscal decentralization on high-quality economic development is significantly increased. Therefore, it is necessary to straighten out the financial relationship between governments and optimize the division of authority and expenditure responsibility, rationally control the level of financial vertical imbalance and continuously relieve the pressure on local finance, and improve the incentive and restraint mechanisms of the local governments to fully stimulate the enthusiasm for high-quality economic development.

Key words: vertical fiscal imbalance, fiscal decentralization, high-quality economic development, threshold effect