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

TY - JOUR

T1 - China’s fiscal decentralization and environmental quality

T2 - theory and an empirical study

AU - Hao, Yu

AU - Chen, Yu-Fu

AU - Liao, Hua

AU - Wei, Yi-Ming

N1 - Funding Information: The authors acknowledge financial support from the National Natural Science Foundation of China (71761137001, 71403015, 71521002), the Beijing Natural Science Foundation (9162013), the key research program of Beijing Social Science Foundation (17JDYJA009), the National Key Research and Development Program of China (2016YFA0602801, 2016YFA0602603), and the Special Fund for Joint Development Program of the Beijing Municipal Commission of Education. The authors are also very grateful to two anonymous reviewers and Editor-in-Chief Prof. E. Somanathan for their insightful comments that helped us sufficiently improve the quality of this paper. The usual disclaimer applies. Publisher Copyright: © 2019 Cambridge University Press. Copyright: Copyright 2020 Elsevier B.V., All rights reserved.

PY - 2020/4

Y1 - 2020/4

N2 - 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.

AB - 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.

KW - China

KW - economic growth

KW - environmental quality

KW - fiscal decentralization

KW - panel data

UR - https://www.scopus.com/pages/publications/85071947432

U2 - 10.1017/S1355770X19000263

DO - 10.1017/S1355770X19000263

M3 - Article

SN - 1355-770X

VL - 25

SP - 159

EP - 181

JO - Environment and Development Economics

JF - Environment and Development Economics

IS - 2

ER -