Income, Policy, and Pollution

This paper identifies the roles of an environmental protection policy and income growth in enhancing environmental quality in China. In 2005, the Central Government of China piloted a policy that linked regional environmental quality to the performance assessment of local government officials in some provinces. After the implementation of the policy, pollution levels reduced substantially. However, many researchers believe that the improvement of China’s environmental quality might have been due to an increase in per capita income, i.e., there is the presence of an “environmental Kuznets curve.” We use a nonparametric IV model and a synthetic control method to identify the role of income and policy in improving environmental quality. Results show that after controlling for the mutual effects of the two factors, income level had an inverted U-shaped relationship with sulfur dioxide and wastewater emissions. There are differences in the effects of policies on pollution reduction among different cities, and the magnitude is affected by regional economic development. Our findings contribute to the understanding of the effects of income and policy on pollution reduction.