Abstract: Promoting stable and sustainable fi scal operations constitutes a crucial issue in China’s current economic and social development. Based on the panel data of 258 prefecture level cities from 2013 to 2022, this paper employs two-way fi xed eff ects models and mediation eff ect models to empirically analyze the intrinsic relationships among fi scal vertical imbalance, budget transparency, and local fi scal sustainability. The fi ndings reveal: (1) Fiscal vertical imbalance significantly undermines local fiscal sustainability; (2) Enhancing budget transparency helps harden budget constraints and mitigates the negative impact of fi scal vertical imbalance on local fi scal sustainability; (3) Heterogeneity analysis indicates that the adverse eff ects of fiscal vertical imbalance are more pronounced in economically less-developed cities, while reforms clarifying expenditure responsibilities between government tiers can alleviate such imbalances. These conclusions provide valuable insights for addressing fiscal revenueexpenditure contradictions, improving fi scal governance effi ciency, and refi ning China’s modern fi scal system.