Environmental Pollution Effects Of Tax Sharing

For more than 40 years since the reform and opening up,China’s economic development has been rapid,but along with the economic "growth miracle" came the extensive economic development model and unreasonable industrial structure,which caused great damage to China’s ecological environment.Chinese fiscal decentralization has played a huge role in boosting China’s rapid economic growth,and has also caused a series of environmental problems.Tax sharing,as an important institutional arrangement under the fiscal decentralization system,stipulates the most important source of revenue for local governments,namely,the distribution of tax revenue among central,provincial,and prefecture-level cities.Under the method of fiscal incentives,tax sharing will also affect local government’s behavioral decision to a certain extent,which will have different pollution effects on the environment.Therefore,from the perspective of tax sharing,this article discusses the impact of tax sharing fiscal incentives on local government behavior and environmental pollution,and incorporates tax sharing,industrial structure and environmental pollution into the same research framework to further explore the transmission mechanism of tax sharing impact on environmental pollution.This article first sorts out the relevant literature and starts with the theoretical analysis,analyzes the mechanism of tax sharing on the industrial structure and the impact of industrial structure on environmental pollution,and proposes theoretical hypotheses.Then based on the theoretical analysis,the panel data of 267 prefecture-level cities from 1998 to 2011 were used to make an empirical analysis of the value-added tax and business tax shares and their changing environmental pollution effects.Then an impact mechanism model was constructed to further explore the transmission path of the impact of the two tax shares on environmental pollution.Finally,the regional heterogeneity of tax sharing and its changing environmental pollution effects is empirically tested in east,central,and western regions.The empirical research on environmental pollution caused by tax sharing and its changes found that the higher the proportion of value-added tax in prefecture-level cities,the higher the level of environmental pollution in the jurisdiction,and the higher the percentage of the business tax share,the environmental pollution effect will be significantly reduced.The decrease in the value-added tax share and the increase in the percentage of the business tax share will help improve the quality of environmental pollution.This paper also verified the robustness of the basic regression results through empirical analysis of changing the level of environmental pollution,measuring the proportion of tax shares in prefecture-level cities,constructing a DID regression model for the change in the intensity of tax sharing,and a system GMM regression with environmental pollution lag variables.The regression results of the impact mechanism model show that the industrial structure is an important transmission path for the proportion of tax sharing to affect environmental pollution.The high proportion of business tax compared to value-added tax prompted local governments to prefer the tertiary industry corresponding to business tax rather than the secondary industry corresponding to VAT.The difference in local government’s support for the two taxes for different industries will lead to changes in the development scale and industrial structure of different industries,and then affect the level of environmental pollution in the jurisdiction.The regression results by region found that the empirical results of the impact of the proportion of the two tax shares and their changes on environmental pollution in the east,central and western regions are basically consistent with the regression results at the national level,but the impact of the proportion of business tax shares on environmental pollution in the eastern region is more significant than in the central and western regions.The environmental pollution effect of VAT share is more obvious in the central and western regions.Moreover,the environmental pollution suppression effect brought by the increase of the proportion of the business tax share is more obvious in the central and western regions,while the decrease of the value-added tax share shows a greater effect of the environmental pollution suppression in the eastern region.Based on the tax sharing,industrial structure and environmental pollution-related theories and empirical test results,this article proposes the following policy recommendations: guided by improving the quality of economic development,we will deepen the reform of the tax sharing system agreement;establish and improve the incentive mechanism for environmental performance assessment;continue to optimize the industrial structure and promote the green upgrade of the industrial structure.