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Can Local Government Debt Decrease the Pollution Emission of Enterprises?—Evidence from China’s Industrial Enterprises

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  • Hai Xie

    (China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, China)

  • Weikun Zhang

    (School of Social and Public Administration, Lingnan Normal University, Zhanjiang 524037, China)

  • Hanyuan Liang

    (China Center for Special Economic Zone Research, Shenzhen University, Shenzhen 518060, China)

Abstract

The rapid growth of local government debt size in China has aroused the attention of academia and policy circles due to its impact on environmental pollution. This paper aims to explore the impact of local government debt size on corporate pollution emissions and its mechanism. This paper uses the China Local Government Debt Database, Industrial Enterprise Database, and Industrial Enterprise Pollution Database from 2006 to 2013, and adopts the two-way fixed effect model and difference-in-differences method to conduct an empirical analysis of industrial enterprises in 31 provinces of China. The results show that the local government debt size has a significant positive impact on corporate pollution emissions, and each unit increase in the local government debt size leads to an increase of 0.002 units in corporate pollution emissions. Further mechanism tests show that this effect is realized through the expansion of regional fixed asset investment and the reduction of enterprise R&D investment. In addition, there is significant heterogeneity among enterprises of different ownership, location, and industry. This paper provides practical references for local governments and micromarket actors to improve environmental protection and debt governance in the new era.

Suggested Citation

  • Hai Xie & Weikun Zhang & Hanyuan Liang, 2023. "Can Local Government Debt Decrease the Pollution Emission of Enterprises?—Evidence from China’s Industrial Enterprises," Sustainability, MDPI, vol. 15(11), pages 1-20, June.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:11:p:9108-:d:1164187
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    References listed on IDEAS

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    3. Chen, Suyun & Li, Zongze & Xie, Feixue & Xu, Xiaofang, 2024. "The signaling effect of local government debt: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 95(PA).

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