Continuous green innovation, as the engine for accelerating the formation of green productive forces, is an intrinsic requirement of green development and is of great significance for promoting China’s high-quality development. Using data from A-share listed companies in Shanghai and Shenzhen from 2003 to 2022, this paper empirically examines how government subsidies, government-guided funds, and their combination of allocation and investment incentivize enterprises’ continuous green innovation.

The findings are as follows: (1) The incentive effect of government-guided funds is stronger than that of government subsidies, and their combination of allocation and investment generates a mixed incentive effect. When fiscal funds are directed towards development goals such as “innovation” and “green,” policy tools with convergent goals under the combination of allocation and investment show a mixed incentive effect, whereas those with heterogeneous goals do not. (2) The driving mechanisms of the two types of fiscal funds share commonalities and differences: Innovation tendency and financing constraints are common mechanisms, while risk-taking and venture capital are differentiated mechanisms. (3) The incentive effects of government subsidies, government-guided funds, and their combination of allocation and investment vary with capital market openness, environmental pressure, and the stage of enterprise life cycle. (4) Government-guided funds and the combination of allocation and investment foster continuous green innovation that can be transformed into green production capacity.

The marginal contributions of this paper are as follows: (1) It reveals the incentive effects, differentiated mechanisms, and specific conditions of the combination of allocation and investment between government subsidies and government-guided funds in promoting continuous green innovation, and verifies the incentive effect of such concretized policy tools under the goals of “innovation” and “green,” aligning more closely with the practical needs of modern policy synergy. (2) It constructs a theoretical analysis framework linking government subsidies, government-guided funds, and their combination of allocation and investment with enterprises’ continuous green innovation, integrating the mechanisms of innovation tendency, financing constraints, risk-taking, and venture capital, thus expanding existing theoretical research. (3) It examines the role of fiscal funds in promoting such innovation, offering insights for improving the precision and effectiveness of fiscal funds in accelerating the formation of green productive forces.