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New Evidence on the Soft Budget Constraint: Chinese Envronmental Policy Effectiveness in Private versus SOEs

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Listed:
  • Mathilde Maurel

    (CNRS - Centre d'Economie de la Sorbonne - Université Paris 1 panthéon-Sorbonne
    https://centredeconomiesorbonne.cnrs.fr)

  • Thomas Pernet

    (Centre d'Economie de la Sorbonne
    https://centredeconomiesorbonne.cnrs.fr)

Abstract

This paper analyses the efficiency of a set of environmental measures introduced by the 11th FYP (Five Years Plan) in China 2006, using a rich and unique dataset borrowed from the Ministry of Environmental Protection (MEP) and from the State Environmental Protection Agency (SEPA). The objective is to provide new evidence of the Soft Budget Constraint (SBC), which is a key concept coinced by Janos Kornai. The main finding is that TCZ (Two Control Zone) cities are successful in bringing down the emission of SO2, and more importantly that this success is driven by the private sector. Sectors dominated by State-Owned Enterprises (SOEs) are less sensitive to the environmental target-based evaluation system, by a factor of 42%. We also find that one channel, through which this adjustment takes place, is Total Factor Productivity (TFP), but not in the case of SOEs. We interpret these results as pointing to the evidence of a still ongoing SBC surrounding Chinese SOEs

Suggested Citation

  • Mathilde Maurel & Thomas Pernet, 2020. "New Evidence on the Soft Budget Constraint: Chinese Envronmental Policy Effectiveness in Private versus SOEs," Documents de travail du Centre d'Economie de la Sorbonne 20002, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:20002
    DOI: 10.1007%2Fs11127-020-00834-1
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    3. Lu, Yunguo & Zhang, Lin, 2022. "National mitigation policy and the competitiveness of Chinese firms," Energy Economics, Elsevier, vol. 109(C).
    4. Aleksander Grad & Jakub Karnowski & Andrzej Rzońca, 2022. "Jak powiązać prywatyzację i rozwój filara kapitałowego w systemie emerytalnym – propozycja," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 484-508.

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    More about this item

    Keywords

    Environmental regulation; China; Kornai; Soft Budget Constraint;
    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
    • 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
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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