Fiscal Decentralization and Environmental Pollution: A Spatial Analysis

Abstract

Based on annual data over the period 2003 to 2017 covering 31 provinces in China, the environmental pollution index and environmental regulation index are constructed. Moran’s I, the widely used spatial autocorrelation index, is used to analyze the spatial distribution of environmental pollution, which provides a fairly high stability of the positive spatial correlation of environmental pollution. Then, the 0-1 matrix, distance weighting matrix, and economic distance mixed matrix are carried out to weigh space separately. To analyze the impact of fiscal decentralization on environmental pollution, the spatial Durbin model is employed. In the meanwhile, fiscal decentralization is measured from the perspective of both fiscal expenditure decentralization and fiscal revenue decentralization. The results show that the impact of fiscal decentralization on environmental pollution is positive and appears the phenomenon of “race to bottom.” To improve environmental quality, appropriate environmental regulation target, implementing green GDP accounting, and adjusting economic structure should be adopted.

Asymmetric impact of fiscal decentralization and environmental innovation on carbon emissions: Evidence from highly decentralized countries

“…A large number of studies have been carried out to examine the FD effects on environmental quality. 11,13,17,49,50 However, empirical literature produced inconclusive results, such as Sigman 51 explored decentralization impact on 47 countries covering the years 1979 to 1999 using a linear model. Their outcome reveals that highly decentralize states are experiencing fewer pollution levels.…”

Does fiscal decentralization and eco‐innovation promote sustainable environment? A case study of selected fiscally decentralized countries

“…Cheng et al (2020) utilized the nonlinear term of fiscal decentralization in his model for China and used the decomposition methods to explain the changes in CO 2 emission along with the fixed‐effect method and dynamic GMM methods. Similarly, Chen and Liu (2020) examined the role of fiscal decentralization on index constructed for environmental pollution and analyzed the spatial distribution of environmental pollution. In particular, theories developed so far provide normative and conceptual guidelines on the fiscal tools, which different government levels can adopt to carry out better the role of fair distribution of resources among states (Oates, 2003).…”

“…To sum up, the importance of fiscal decentralization in explaining different macroeconomic activities is well documented in the literature (Roche et al, 2018). Moreover, research is also carried out to investigate the effects of fiscal decentralization on environmental sustainability (Chen & Liu, 2020; Cheng et al, 2020; Cutter & DeShazo, 2007; Kunce & Shogren, 2008; Liang & Yang, 2019). However, the nexus between fiscal decentralization and environmental sustainability is inconclusive, and we summarize the related studies on the testing of a race to the top or bottom hypothesis in Table 1.…”

The Impact of Transport Infrastructure Investment on Energy Intensity: The Perspective of Fiscal Decentralization

“…This stage of development can be understood as follows: with the expansion of local financial power, the increase in the scale of transport infrastructure investment to increased energy intensity underwent an inevitable slowdown. Liu and Elheddad also found a non-linear relationship between fiscal decentralization and energy consumption [42][43][44].…”