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New evidence on the soft budget constraint: Chinese environmental policy effectiveness in SOE-dominated cities

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  • Mathilde Maurel

    (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Thomas Pernet

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This paper analyses the efficiency of a set of environmental measures introduced by the 11th Five Years Plan (FYP) in China in 2006, using a rich and unique dataset borrowed from the Ministry of Environmental Protection (MEP) and the State Environmental Protection Agency (SEPA). By exploiting plausibly exogenous variation in regulatory stringency generated by the targets' system in China across provinces in 2006, we find evidence that pollution-intensive cities substantially decreased the emission of SO2, whereas cities where the presence of SOEs (State Owned Enterprises) is large did not. We interpret these results as pointing to the evidence of a still ongoing SBC (Soft Budget Constraints) surrounding Chinese SOEs. The findings are robust to the inclusion of different specifications of fixed effects, and other key determinants of firm pollution. Moreover, we investigate what are the main factors behind the no-compliance to the regulations: the overlapping (or not) with TCZ (SPZ, Coastal) cities where the environmental (growth) policies are prioritized, * The authors are grateful to William F. Shughart II and two anonymous reviewers, whose comments improved the manuscript considerably. We are also very greatful to Zhao Ruili and Zhou Ling for their precious help in collecting the data from the China Environment Statistics Yearbook.

Suggested Citation

  • Mathilde Maurel & Thomas Pernet, 2021. "New evidence on the soft budget constraint: Chinese environmental policy effectiveness in SOE-dominated cities ," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03511874, HAL.
    • Handle: RePEc:hal:cesptp:hal-03511874
    DOI: 10.1007/s11127-020-00834-1
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    More about this item

    Keywords

    Environmental regulation; China; Kornai; Soft Budget Constraint; Differencein-Difference estimation Q53;
    All these keywords.

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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