Research On Environmental Pollution Of Fiscal Decentralization

Since reform and opening in1978, China has made great economic achievements with rapidgrowth rate. However, the deteriorating environmental conditions cannot be concealed byescalating economic output and growth rate. With the increasing pressure on resources andenvironment, the sustainable development of China’s economy is faced with great challenges.Although China now is at the middle stage of industrialization, environmental problems，whichgradually were exposed in developed countries over the last century，have been appearing in ourcountry. Besides the trend of environmental deterioration is not fundamentally changed.Chinese fiscal decentralization differs from the fiscal federalism in western countries.According to China’s high degree of administrative centralization in political systems as well asthe performance evaluation mechanism which considers GDP, tax revenue and other economicperformance indicators the core variables, this paper puts forward a hypothesis that China’sfiscal decentralization has exacerbated the environmental pollution, which is not conducive tothe improvement of environmental quality. In terms of theoretical analysis, this paper tries toexplain it from two research perspectives, one of which is principal-agent theory. The centralgovernment urges local governments to achieve the area’s economic development, enhanceresidents’ welfare, and provide environmental public services, etc. However，Multi-objectiveassessment above are distorted into a single economic growth target. The allocation of financialresources in local governments has appeared inclined configuration: financial input leans to thefield of remarkable economic growth instead of public services of environment. Eventually,insufficient input of public service and governance in environment which falls behind economicdevelopment results in deterioration in environment. From the perspective of regulatory captureand rent-seeking corruption, based on the performance evaluation mechanisms, rent-seekingcorruption and collusion among local governments and businesses becomes a universalphenomenon, and the environmental protection departments lack of independence under theenvironmental decentralization management system. Therefore, the failure of environmentalregulation, the distortion of environmental policy, and the deterioration of environment tend tobe not avoidable. Then, based on inter-provincial panel data of1990-2011from30provinces inChina, a fixed effects model is used in the empirical analysis. And the results of the empiricalanalysis are highly consistent with the theoretical hypothesis of the article.This paper extends the theory vision of fiscal decentralization. And it provides asystem-level perspective to explain China’s environmental problems in the process of economicdevelopment.