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Does Air Pollution Impact Fiscal Sustainability? Evidence from Chinese Cities

Author

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  • Ge Gao

    (School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China)

  • Xiuting Li

    (School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China
    Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Haidian District, Beijing 100190, China)

  • Xiaoting Liu

    (School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China)

  • Jichang Dong

    (School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China
    Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Haidian District, Beijing 100190, China)

Abstract

Fiscal sustainability is an issue of great concern for governments globally and air pollution control has become an important factor affecting fiscal sustainability. This study aims to examine the impact of air pollution on fiscal sustainability in the short and long run. We conducted an empirical analysis based on air pollution and local government debt data on China’s prefecture-level cities in 2014–2019, using regression discontinuity design (RDD) and a panel data model. The results show that air pollution reduces the debt burden of governments in the short run. However, in the long run, addressing the negative impacts of air pollution adds to the debt burden of local governments, hindering fiscal sustainability. Fiscal freedom and the level of public services significantly moderate the negative impact of air pollution on fiscal sustainability. A higher level of fiscal freedom generally indicates a greater incentive for local governments to raise pollutant emission standards, strengthen the construction of green infrastructure, and subsidize green enterprises. Furthermore, a higher level of public services reflects better infrastructure and higher levels of investment in environmental protection, which help to reduce the negative impact of air pollution. The governments are suggested to take measures to effectively control air pollution, so as to enhance fiscal stability in the long run.

Suggested Citation

  • Ge Gao & Xiuting Li & Xiaoting Liu & Jichang Dong, 2021. "Does Air Pollution Impact Fiscal Sustainability? Evidence from Chinese Cities," Energies, MDPI, vol. 14(21), pages 1-16, November.
    • Handle: RePEc:gam:jeners:v:14:y:2021:i:21:p:7247-:d:671021
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    References listed on IDEAS

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    3. Sandra Aguilar-Gomez & Nathaly M. Rivera, 2024. "Air Pollution in the Global South: An Overview of Its Sources and Impacts," Working Papers wp561, University of Chile, Department of Economics.
    4. Xin Han & Zheng Xuelian & Jun Hou & Xianming Kuang, 2023. "The Impact of Haze Pollution on Chinese Local Government Debt," SAGE Open, , vol. 13(4), pages 21582440231, October.
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