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Fiscal Decentralization and Environmental Infrastructure in China

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  • Liu Antung

    (Resources for the Future, 1616 P St. NW, Washington, DC 20036, USA; Department of Economics, Cheung Kong Graduate School of Business, Oriental Plaza Tower E2, 2/F 1 East Chang An Ave., Beijing 100738, China)

  • Zhang Junjie

    (School of International Relations and Pacific Studies, UC San Diego, La Jolla, CA, USA)

Abstract

This article provides new evidence that fiscal decentralization has supported economic development by incentiving cities to provide more sewage infrastructure. As a result of the 1994 tax reform, Chinese cities retained different shares of their value-added tax (VAT). Exploiting the persistence of this sharing system, we use the VAT share in 1995 as an instrument for the present fiscal incentives. We find that cities with higher fiscal incentives built significantly more sewage treatment capacity between 2002 and 2008. This result suggests that fiscal incentives can play a strong role in the development of city-level infrastructure.

Suggested Citation

  • Liu Antung & Zhang Junjie, 2013. "Fiscal Decentralization and Environmental Infrastructure in China," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 733-759, July.
    • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:2:p:733-759:n:23
    DOI: 10.1515/bejeap-2013-0082
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    References listed on IDEAS

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    Cited by:

    1. Sean Dougherty & Andoni Montes Nebreda, 2022. "Going global, locally? Decentralized environmental expenditure and air quality," Public Sector Economics, Institute of Public Finance, vol. 46(4), pages 489-503.
    2. Liangliang Liu & Donghong Ding & Jun He, 2019. "Fiscal Decentralization, Economic Growth, and Haze Pollution Decoupling Effects: A Simple Model and Evidence from China," Computational Economics, Springer;Society for Computational Economics, vol. 54(4), pages 1423-1441, December.

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