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China's fiscal decentralization and environmental quality: theory and an empirical study

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  • Hao, Yu
  • Chen, Yu-Fu
  • Liao, Hua
  • Wei, Yi-Ming

Abstract

As a wide-reaching institutional reform, China's fiscal decentralization was launched in the early 1980s to encourage provincial economic growth by granting more financial autonomy to provincial governments. In this paper, the impact of fiscal decentralization on China's environmental quality is investigated both theoretically and empirically. A neoclassical model is developed based on the primary characteristics of China's fiscal decentralization. Using provincial panel data for the period 1995-2015, a two-equation regression model is employed to empirically verify the three propositions of the theoretical model: (1) there exists an inverted-U shaped relationship between fiscal decentralization and GDP per capita; (2) fiscal decentralization is positively related to GDP per capita at the steady state; (3) there is an inverted-U shaped Environmental Kuznets Curve relationship between pollution emissions and economic growth.

Suggested Citation

  • Hao, Yu & Chen, Yu-Fu & Liao, Hua & Wei, Yi-Ming, 2020. "China's fiscal decentralization and environmental quality: theory and an empirical study," Environment and Development Economics, Cambridge University Press, vol. 25(2), pages 159-181, April.
    • Handle: RePEc:cup:endeec:v:25:y:2020:i:2:p:159-181_4
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    Cited by:

    1. Zhang, Cuifang & Xiang, Xiandeng, 2023. "Fiscal decentralization, environmental policy stringency, and resource sustainability: Panacea or Pandora's box in high resource consuming countries," Resources Policy, Elsevier, vol. 83(C).
    2. Wanfang Xiong & Yan Han & M. James C. Crabbe & Xiao-Guang Yue, 2020. "Fiscal Expenditures on Science and Technology and Environmental Pollution: Evidence from China," IJERPH, MDPI, vol. 17(23), pages 1-20, November.
    3. Shan, Shan & Ahmad, Munir & Tan, Zhixiong & Adebayo, Tomiwa Sunday & Man Li, Rita Yi & Kirikkaleli, Dervis, 2021. "The role of energy prices and non-linear fiscal decentralization in limiting carbon emissions: Tracking environmental sustainability," Energy, Elsevier, vol. 234(C).
    4. Zhou, Shiyu & Luo, Weijie, 2024. "Pollution consequences of vertical fiscal imbalance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 85-97.
    5. Xi Wu & Yajuan Wang & Hongbo Zhu, 2022. "Does Economic Growth Lead to an Increase in Cultivated Land Pressure? Evidence from China," Land, MDPI, vol. 11(9), pages 1-19, September.
    6. Maxwell Chukwudi Udeagha & Edwin Muchapondwa, 2023. "Environmental sustainability in South Africa: Understanding the criticality of economic policy uncertainty, fiscal decentralization, and green innovation," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(3), pages 1638-1651, June.
    7. Hao, Yu & Zhang, Zong-Yong & Yang, Chuxiao & Wu, Haitao, 2021. "Does structural labor change affect CO2 emissions? Theoretical and empirical evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 171(C).
    8. Meng Lingyan & Ze Zhao & Haider Ali Malik & Asif Razzaq & Hui An & Marria Hassan, 2022. "Asymmetric impact of fiscal decentralization and environmental innovation on carbon emissions: Evidence from highly decentralized countries," Energy & Environment, , vol. 33(4), pages 752-782, June.
    9. Sun, Yunpeng & Gao, Pengpeng & Razzaq, Asif, 2023. "How does fiscal decentralization lead to renewable energy transition and a sustainable environment? Evidence from highly decentralized economies," Renewable Energy, Elsevier, vol. 206(C), pages 1064-1074.
    10. Khan, Zeeshan & Ali, Shahid & Dong, Kangyin & Li, Rita Yi Man, 2021. "How does fiscal decentralization affect CO2 emissions? The roles of institutions and human capital," Energy Economics, Elsevier, vol. 94(C).
    11. Shahbaz, Muhammad & Abbas Rizvi, Syed Kumail & Dong, Kangyin & Vo, Xuan Vinh, 2022. "Fiscal decentralization as new determinant of renewable energy demand in China: The role of income inequality and urbanization," Renewable Energy, Elsevier, vol. 187(C), pages 68-80.
    12. Sun, Jiaqi & Li, Ping & Wang, Yunqiao, 2024. "Policy tools for sustainability: Evaluating the effectiveness of fiscal measures in natural resource efficiency," Resources Policy, Elsevier, vol. 89(C).
    13. Wenke Wang & Xiaoqiong You & Kebei Liu & Yenchun Jim Wu & Daming You, 2020. "Implementation of a Multi-Agent Carbon Emission Reduction Strategy under the Chinese Dual Governance System: An Evolutionary Game Theoretical Approach," IJERPH, MDPI, vol. 17(22), pages 1-21, November.
    14. Shi Chen & Xun Liu & Chong Lu, 2022. "Fiscal Decentralization, Local Government Behavior, and Macroeconomic Effects of Environmental Policy," Sustainability, MDPI, vol. 14(17), pages 1-18, September.
    15. Jian, Peng & Zhengjie, Sun, 2024. "Navigating the green future: Unraveling the role of fintech, decentralization, natural resources, and monetary policy uncertainty in China," Resources Policy, Elsevier, vol. 89(C).
    16. Ayoub Zeraibi & Daniel Balsalobre-Lorente & Khurram Shehzad, 2021. "Testing the Environmental Kuznets Curve Hypotheses in Chinese Provinces: A Nexus between Regional Government Expenditures and Environmental Quality," IJERPH, MDPI, vol. 18(18), pages 1-16, September.
    17. Jiang, Weijie & Li, Yidong, 2023. "Effect of fiscal decentralization on pollution reduction: Firm-level evidence from China," Economic Modelling, Elsevier, vol. 129(C).
    18. Yuchen Song & Jingshu Ma & Shuai Guan & Yongfu Liu, 2022. "Fiscal Decentralization, Regional Innovation and Industrial Structure Distortions in China," Sustainability, MDPI, vol. 15(1), pages 1-17, December.

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