Local government competition, environmental regulation, and green development in China: Empirical analysis based on regional heterogeneity and path mechanisms

Using China's interprovincial panel data from 2007 to 2019, this paper empirically investigates the relationship between environmental regulation and green development efficiency (GDE) by examining the local governments competition behavior. The main instruments of local government competition, involving taxation, government spending and attracting investment, are considered as well as the institutional context. Following the “performance‐output‐performance” to clarify the role of local government competition and environmental regulation on GDE, it is found that fiscal spending competition increases GDE, while tax and capital attraction competition play the opposite role; performance promoted inter‐governmental competition makes local governments' strategic choices between economic catch‐up and environmental protection volatile, and this volatility brings about fluctuations and losses in GDE. The study by regions finds that government competition and environmental regulation have a greater impact on GDE in the eastern and developed regions, while the impact on other regions is relatively small. Further, the mechanism setting and institutional improvement of environmental governance achieved significant results after 2013, but the function of local government competition mechanisms in improving environmental quality has not yet emerged in China. The findings based on the heterogeneity of regional economic development and path mechanisms provide a reference for social planners to carry out top‐level design in taxation, fiscal spending, and investment attraction, as well as to formulate differentiated regional environmental regulation policies.