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Does Government Decentralization Shape Firms’ Pollution Emissions? Evidence from a Natural Experiment in China

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  • Dongmin Kong
  • Wenzhe Zhang
  • Gaowen Kong

Abstract

This study investigates whether and how government decentralization affects firms’ pollution emissions. To identify causality, we introduce a triple-difference strategy based on a natural experiment launched by the central government of China, i.e., the “Province-Managing-County” fiscal reform, which aims to eliminate the prefecture government as the intermediate layer between province and county. We show that the PMC fiscal reform increases firms’ pollution emissions. Our findings are particularly pronounced for firms located in Eastern China and in provinces with high-level marketization. Welfare analysis exhibits that decentralization-induced pollution on PM2.5 leads to around 449–663 increase in death every year at the county-level.

Suggested Citation

  • Dongmin Kong & Wenzhe Zhang & Gaowen Kong, 2022. "Does Government Decentralization Shape Firms’ Pollution Emissions? Evidence from a Natural Experiment in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(11), pages 3136-3151, September.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:11:p:3136-3151
    DOI: 10.1080/1540496X.2022.2029400
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    Citations

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    Cited by:

    1. Jin, Haizhen, 2023. "Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments," Economic Modelling, Elsevier, vol. 119(C).
    2. Tan, Jianhua & Hua, Min & Chan, Kam C., 2024. "Do anticipated government environmental audits improve firm productivity? Evidence from China," Finance Research Letters, Elsevier, vol. 61(C).
    3. Chen, Zehao & Li, Yibo & Lin, Yuyang & Pan, Jingrui, 2023. "Business environment and corporate financing decisions: From the perspective of dynamic adjustment of capital structure," Finance Research Letters, Elsevier, vol. 58(PB).
    4. Jia, Wentao & Xie, Rui & Ma, Chunbo & Gong, Zezhong & Wang, Hui, 2024. "Environmental regulation and firms' emission reduction – The policy of eliminating backward production capacity as a quasi-natural experiment," Energy Economics, Elsevier, vol. 130(C).
    5. Sun, Yabin, 2024. "Bank competition and firm greenwashing: Evidence from China," Finance Research Letters, Elsevier, vol. 63(C).

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