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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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    1. Zhuravskaya, Ekaterina V., 2000. "Incentives to provide local public goods: fiscal federalism, Russian style," Journal of Public Economics, Elsevier, vol. 76(3), pages 337-368, June.
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    5. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
    6. World Bank, 2002. "China - National Development and Sub-National Finance : A Review of Provincial Expenditures," World Bank Publications - Reports 15423, The World Bank Group.
    7. World Bank, 2008. "An Evaluation of Bank Support for Decentralization in Client Countries," World Bank Publications - Reports 10595, The World Bank Group.
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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. Qiang Li & Youming Tang & Wei Wei & Wei Wei, 2024. "Environmental decentralization, local governments’ environmental attention and environmental pollution: an empirical evidence from establishment of River Chief System in China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(12), pages 31147-31173, December.
    3. 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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