Effects of government expenditure for environmental protection on SO2 pollution in China

The Chinese governments have reinforced environmental regulation to solve the problem of ever-growing environmental degradation by increasing expenditure for environmental protection. We observe that provincial expenditure for environmental protection is spatially clustered, implying potential spatial spillovers of environmental policies proxied by the expenditure. Hence, we plan to investigate the direct and indirect spillover effects of environmental policies based on an extended spatial STIRPAT Durbin model. The findings are as follows: (1) Results reveal that the variable of expenditure for environmental protection has a significant and negative impact on SO2 pollution, indicating that an increase in environmental awareness of governments contributes to mitigating SO2 pollution; (2) An indirect spatial spillover effect of environmental protection expenditure is also verified since significant and negative coefficients are obtained, which indicates that increasing environmental protection expenditure of neighboring provinces can also help reduce the SO2 pollution of a province. The possible explanation is that provinces will follow suit if neighboring provinces increase spending on environmental protection, presenting the demonstration and competition effects. To conclude, it can be verified that the effect of environmental policy works. Hence the need for more environmental protection expenditure cannot be overstated for China’s sustainable development.