["Economics of Transition and Institutional Change, Volume 34, Issue 2, Page 261-275, April 2026. ", "\nABSTRACT\nTo mitigate China's soaring public debt, we advocate for a carbon‐based public finance system centred around a carbon tax. CGE modelling shows that an origin‐based carbon tax can significantly alleviate debt pressure, a finding subsequently supported by empirical research using a generalised DiD method. We believe that generating public revenue from carbon emissions is highly sustainable. However, spillovers are worth noticing, and destination‐based carbon taxes warrant careful consideration. Apart from a carbon tax, the Chinese government should also advance an auction system for emission allowances in the carbon market, for the establishment of a comprehensive carbon‐based public finance system.\n"]