Study On Influence Of Chinese-style Fiscal Decentralization To Environmental Pollution

There has been a rapidly growing period of Chinese economies since reform and opening up, especially science the implementation of fiscal decentralization. A large amount of literature and search indicated that the close combination of fiscal decentralization and political centralization is the core connotation of Chinese-style fiscal decentralization, which has made a contribution to bring “getting incentives right” to local governments, promoting the marketization process and economic growth. However, motivated by the fiscal revenue and political promotion, local governments, especially those in poverty-stricken areas, have a strong incentive in economic development. In order to pursuit economic benefits during the process of investment attraction, the environmental regulation policy has been relaxed. As a result, the objects of environmental protection have been sacrificed. The environmental pollution and ecosystem destruction are intensifying continuously, while there were lots of policies were published, which have little effect because of the restricting of strategies of economic development during this period.Most traditional literature analyzed the causes of pollution from the point of economical factors such as external theory, property right theory and public product theory, etc. But economical factors can’t act alone without institutional factors. Although the western Fiscal Decentralization theory already developed quite maturely, foreign study achievements have little reference significance to the research of Chinese-style fiscal decentralization and environmental pollution for the different political and economic regimes. International and domestic academics make a deep theoretical analysis on fiscal decentralization from different perspectives, but not the relationship between fiscal decentralization and environmental issues. And most of the researches take fiscal decentralization and non-economic public goods provision as study objects, while there is less literature about ways or mechanism that how fiscal decentralization affect environmental pollution. Therefore this paper tries to explain the China’s environmental pollution based upon the perspective of Chinese-style fiscal decentralization, and reveals the incentive distortions to local government by fiscal decentralization.Based on the correlation theory of Chinese-style fiscal decentralization and its incentive mechanism to local governments, combining the current situation and policies of environmental pollution in China, this paper make a research on the effective mechanism of Chinese-style fiscal decentralization upon environmental pollution, and also confirm its validity by empirical study. Utilizing the provincial panel data, using entropy evaluation method to measure environmental pollution index and setting fiscal decentralization index, local government competition index and control variables such as industrial structure, foreign trade dependence and foreign direct investment, the paper studies the effect of Chinese-style fiscal decentralization on environmental pollution by establishing econometric model. The results of the study showed three conclusions: 1. From the regression analysis of data sample we know that Environmental Kuznets Curve has existed in China, and Chinese-style fiscal decentralization and its incentive distortions to local government cause the deterioration of environmental quality, and the degree of environment pollution will get worse with the enhancement of fiscal decentralization and the growing competition among local governments. 2. Further study of differences in east, central and west regions shows that there exists marked regional difference of the effect of fiscal decentralization on environmental pollution among different regions. Conditions in central and west regions are correspondence with sample conclusion. While in east region, the enhancement of fiscal decentralization helps improve the environment, but this kind of advantageous function becomes less functional because of the increased competition among local governments. 3. There is a positive correlation between four indexes(industrial structure, foreign trade dependence, foreign direct investment and pollution abatement investment) and environmental contamination. And the central and west region is more susceptible to the industrial structure, foreign trade dependence and foreign direct investment. Finally, this paper put forward policy recommendations from the points of promotion mechanism, financial system and social supervision.