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Effects of One-Sided Fiscal Decentralization on Environmental Efficiency of Chinese Provinces

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  • Hang XIONG

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Abstract

China’s actual fiscal decentralization is one-sided: while public expenditures are largely decentralized, fiscal revenues are recentralized after 1994. One critical consequence of the actual system is the creation of significant fiscal imbalances at sub-national level. This paper investigates empirically effects of fiscal imbalances on environmental performance of Chinese provinces. First, environmental efficiency scores of Chinese provinces are calculated with SFA for the period from 2005 to 2010. Then, these scores are regressed against two fiscal imbalance indicators in a second stage model. Finally, conditional EE scores are calculated. This paper finds that effects of fiscal imbalances on EE are nonlinear and conditional on economic development level. Fiscal imbalances are more detrimental to environment in less developed provinces. These results suggest that the one-sided fiscal decentralization in China may have regressive environmental effects and contribute to regional disparity in terms of sustainable development.

Suggested Citation

  • Hang XIONG, 2012. "Effects of One-Sided Fiscal Decentralization on Environmental Efficiency of Chinese Provinces," Working Papers 201208, CERDI.
  • Handle: RePEc:cdi:wpaper:1328
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    File URL: http://publi.cerdi.org/ed/2012/2012.08.pdf
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    References listed on IDEAS

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    Keywords

    Chinese provinces; Decentralization; Environmental efficiency; SFA;

    JEL classification:

    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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