A Political Economic Analysis On Fiscal Decentralization And Environmental Pollution:Evidence From China

With the development of reform and opening up,China’s economic has achived a sustained rapid growth,the living standard of people has been improved significantly. Meanwhile, China’s environmental pollution but is increasingly deteriorating. Traditionally, the general interpretation of environmental pollution is resulting from environmental pollution itself, such as the externalities of pollution,economic growth and any other economic factors to study pollution problems. However, we think that this explanation is not sufficient, we should find the reason from a broader institutional perspective.Fiscal decentralization as an institutional innovation since the1950’s, which has extensively and profoundly impacted on the socio-economic development in many countries and has been widespread concern in the academic community. Chinese-style fiscal decentralization is not only an important part of reforms,but also an important institutional factors to explain the causes of economic growth many scholars are using fiscal decentralization to explain China’s growth miracle. Chinese-style fiscal decentralization include both vertical political centralization and a wide range of economic decentralization.On the one hand, through Chinese-style fiscal decentralization, central government empowers local governments a large number of freedom and authority on economic developpment and take up the local fiscal revenue,there is a pressure on local government finances, so that local governments can have a free hand and motivateon to attract investment to develop the economy. On the other hand, the central government ues growth rate of gdp as the main assessment indicators to decide the promotion of officials in order to attract the attention of officials to make economic construction. Moreover, since China’s special political system, the executive power is too large, citizens have limited impact on government policy and lack of other effective oversight mechanisms, governments often take opportunistic behavior to collusion with polluting enterprises. The competition between governments at the same level has magnified this incentive,and environmental protection has some features,such as large investment,long cycle,having externalities, etc. This institutional arrangement is bound to greatly mobilized the enthusiasm of the local government to develop the economy, while making the local government has neither the motivation nor the ability to fulfill the responsibilities of environmental protection. Then, the paper has established a multi-agency task model between the central and local governments and a bargaining model between local governments and polluting enterprises,it is a proof that the local government’s select is rational from a more rigorous theoretical perspective. Finally,we has established a measurement model with inter-provincial panel data to analysis the impact of Chinese-style fiscal decentralization and corruption on environmental pollution. The results show that: with the increasing of degree of fiscal decentralization, fiscal deficits and corruption, the emissions of environmental pollutants also increased correspondingly. This shows that the central government use " two vertical lines "(financial incentives and promotion incentives) and " a horizontal line"(The competition between governments at the same level) to incentive the local governments, and local governments and polluting industries have a convergence of interests, So,the local governments abandon environmental quality to pusuit the growth of economic.The innovation of this paper is starting from a institutional perspective of Chinese-style fiscal decentralization to explain the problem of environmental pollution. And this paper uses a combination of theoretical and empirical way to do the reaserch.This makes the papar reasoning more clearly and getting the conlusion more convinced. Of course, this paper is also inadequate, the institution of Chinese-style fiscal decentralization is as an indirect way to impact of environmental pollution, the paper did not put direct factors(production technology, pollution taxes,ect) and indirect factors that have an effect on the behavior of polltioning enterprises together to explain environmental problems.