| Ever since the reform and opening-up30years ago, China has encountered dramatic changes either in political, economic or social spheres, now leading fast forward to modernization. During the transition, fiscal reform has always been centered and played a pivotal role in China’s economic and social development. In the Decision of CPC Central Committee on Several Important Issues of Comprehensively Deepening Reform passed by the Third Plenum of18th CPC Central Committee, the positioning of fiscal responsibility was placed unprecedentedly high as the "the cornerstone and backbone of national governance", which further demonstrated the importance and urgent need for fiscal reform and research.It is widely believed in academia that, recent decades of fiscal reform in China is fundamentally featured by decentralization from central government to local authorities, and this trend towards decentralization has influenced profoundly:on one hand, by decentralizing power to lower-level authority, the enthusiasm for economic development has been cultivated among local governments, and the competition between local governments has been greatly provoked, which has laid a systematic groundwork for the outstanding achievement of China’s economy; on the other hand, the decentralizing and release of power has also resulted in some negative effects, especially in the insufficiency of local public goods supply.In order to strengthen the capacity of national governance and modernize the governance system, fiscal system shall be optimally restructured, which requires specific targeted proposals towards those problems in the existing fiscal system. However, the research findings on fiscal decentralization now available mainly focus on fiscal decentralization versus public goods supply, namely medical treatment, public health, education and infrastructure, fiscal decentralization versus land sale and leasing, and fiscal decentralization versus local governments’ debts, whereas environmental pollution, another major negative effect aroused by fiscal decentralization, is seldom addressed.In recent years, as environmental pollution gets worse and environmental protection has received more and more attention from the Government, environmental issues have gradually arisen up to be hot topics of public discussion. The18th National Congress has included ecological civilization progress into its overall approach, and the2014Report on the Work of the Government has put forward a big "jolt" of pollution management and control as part of the National Strategy. To find out what causes environmental pollution shall come first before pollution management and control, yet the causes of environmental pollution in China have been complicated and diversified. One major of them is the "absence" of local government environmental supervision and management. The "absence" reflects a kind of rational choice of local governments under the existing fiscal and personnel incentive system. Therefore, based on the theory of finance and public economics, this paper shall analyze and demonstrate the behavioral preference of local governments and how this preference influence environmental supervision and management, which shall not only offer a new point of view towards the issue of environmental pollution in China, but also enlighten new measures of pollution management and control in China. By means of presenting the incentive mechanism embedded in the fiscal system, this paper hopes to provide experience for future top-level solutions of fiscal reform, and to have some reference for the improvement of public finance system, social welfare and environmental protection.From the existing literature, it seems that the research abroad on fiscal decentralization versus environmental pollution is more advanced, with more diversified analytical models, compared with the relatively late start of the research at home. Most inland research agreed that fiscal decentralization would hinder the environment improvement. However, these conclusions towards fiscal decentralization versus environmental pollution have shortcomings in terms of:Firstly, due to the disparity on the time limit of the research data, the selection of indicators and empirical approaches, the conclusions drawn upon the existing research have never delivered consistent answers to how fiscal decentralization interacts with environmental pollution;Secondly, the present study has failed to illustrate the transmission mechanism of fiscal decentralization upon environmental pollution. Fiscal decentralization transmits its influence by affecting the acting subjects’behavior choices. Yet the present study has considered the process of internal behavior choices as a "black box", without any further probe into the transmission mechanism.In consequence, this paper shall mainly focus on two aspects:firstly, this paper analyzes how fiscal decentralization and local government competition influence regional environmental pollution, and how fiscal decentralization system functions as an incentive to local government and affects the behaviors of environmental management and control, by selecting dynamic panel data, referring to more indicators and variables and applying suitable empirical approaches; secondly, by theoretical deduction this paper summarizes the function mechanism of fiscal decentralization into three parts:the change both in the structure and mode of local fiscal expenditure has influenced the input of environmental pollution control, and eventually the level of environmental pollution; the change in intensity and direction of central government transfer payment has further influenced the local government environmental input; the influence on local industrial policy then acts on the local industrial structure, and afterwards on the emission of environmental pollutants.With regard to the shortcomings of the present study, this paper proposes relevant research hypothesis, and establishes a research model on how fiscal decentralization influence environmental pollution. The emphasis of the model is to analyze the specific effects acted on environmental pollution by fiscal decentralization, and how fiscal decentralization influences the level of environmental pollution by means of fiscal expenditure, central government transfer payment and industrial structure.From the2003-2010China provincial-level panel data, this paper carries out descriptive statistical analysis towards variables in regard to fiscal decentralization, local government competition, fiscal expenditure, central transfer payment, industrial structure and environmental pollution, analyzes the features and relations of these variables, and adopts the GMM system to verify relevant hypothesis. By the analysis of data, this paper draws the following conclusions:firstly, the degree of fiscal decentralization is positively correlative with the degree of the "three industrial wastes pollution", which means the further the fiscal decentralization proceeds, the worse the environmental pollution gets; secondly, in the context of fiscal decentralization, the competition between local authorities can arouse a certain degree of suppressive effect on environmental pollution, which means along with the all-round competition between local authorities during the observation period, the tolerance for pollution has been gradually decreased, and the upgrading of industrial structures also has a certain degree of extrusive effect upon high pollution; thirdly, there is distinctive negative correlation between local pollution control expense and the "three industrial wastes pollution", namely air pollution, water pollution and solid waste pollution, given that after local governments expense for pollution control, the variable of fiscal decentralization is distinctively negative-correlative with the variables of the "three industrial wastes pollution’" which means pollution control expense has suppressive effect on the "three industrial wastes pollution"; fourth, central transfer payment is positively correlative with the "three industrial wastes pollution", given that after central transfer payment is done, the variable of fiscal decentralization is still distinctively positive-correlative with the variable of environmental pollution, which means China’s central transfer payment does not have suppressive effect upon environmental pollution; fifthly, the added value of high pollution industries is distinctively positive-correlative with water waste pollution, whereas it is distinctively negative-correlative with solid waste pollution and air pollution, given that along with the added value of high pollution industries, the variable of fiscal decentralization is still distinctively positive-correlative with the "three industrial wastes pollution", which means as economic development is taken as the only indicator for government performance appraisal, regional high pollution industries are lead to rapid growth, and eventually regional environmental pollution gets worse and worse. Due to the difference in sample selection, measurement and research models, the conclusions of this paper do not go all the way with the present empirical study of this theme.Taking environmental pollution as the major subject of the research, sampled by the provincial-level panel data, this paper has integrated the perspectives of fiscal decentralization and promotion campaign theory, and delivered valuable insights for both theory and practice in the sector of public finance. Theoretically, this paper has enriched the context of the study on fiscal decentralization versus local public goods supply, and deliberated how fiscal decentralization influenced environmental pollution in views of mechanism and mediums; practically, the conclusions drawn upon this paper can help policymakers work on system adjustment and policy amendment, so that the government can consequently smooth away difficulties of environmental monitoring and pollution control. The detailed policy proposals are as follows:governments at all levels shall have well-defined power and responsibility for environmental protection, strengthen line management and cross-regional coordination, and try environmental protection taxes for pollution control expense shortage; general transfer payment shall take fully account environmental factors so that the incentive effect of transfer payment can be amplified upon environmental protection, and fiscal transfer payment for ecological compensation shall be established; the responsibility of chief government officials for environmental protection under their governance shall be further emphasized; governments shall expand participation channels for the public to the public to engage in environmental supervision, and push forward all-round environmental legislation, enforcement and supervision. |
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