Decoding the impact of fiscal decentralization on urban pollution intensity in China: A spatial econometric analysis.

ABSTRACT

Utilizing city-level data from China, the paper employs a spatial econometric analysis to investigate the impact of fiscal decentralization on urban pollution. Empirical evidence indicates (1) In the context of the emphasis of ecological civilization construction in China, an increase of fiscal autonomy for local governments is conducive to mitigating urban pollution intensity. Specifically, fiscal decentralization in one city not only promotes a reduction in local pollution intensity but alleviates environmental pollution problems in adjacent cities through spatial spillover effects. (2) Industrial structure upgrading and green technology progress become crucial measures for local governments to realize pollution reduction targets through fiscal expenditure. (3) Heterogeneity analysis reveals that the positive significance of decentralization is most prominent in the eastern China, while local governments with fiscal autonomy in central region tend to transfer pollution to neighboring cities. (4) There is a threshold characteristic for fiscal decentralization to promote a reduction in urban pollution intensity, and its marginal effect becomes more significant accompanied by continuous introduction of sophisticated foreign direct investment. Finally, the paper summarizes the potential significance of fiscal decentralization among Chinese local governments against the background of "Chinese-style decentralization" and proposes corresponding policy recommendations.