The spatial effect of fiscal decentralization on haze pollution in China

The fiscal decentralization system under China’s political centralization affects local economic and environmental policies, and thus has an important impact on environmental quality. This paper uses the panel data of 285 cities in China from 2003 to 2018 and the spatial Durbin model to empirically analyze the impact of fiscal decentralization on haze pollution and its mechanism. The results show that the increase in fiscal decentralization will significantly aggravate the haze pollution in and around the region, and this conclusion is still valid after a series of robustness tests. Moreover, the impact of fiscal decentralization on haze pollution has significant heterogeneity in the size and region of the city, and the sample period. In addition, mechanism analyses show that fiscal decentralization has aggravated haze pollution by increasing infrastructure construction, reducing environmental regulations, and intensifying market segmentation. Further analyses reveal that, on the one hand, local governments have the ability to control haze pollution in their own regions according to their own wishes and interests, but on the other hand, adjustments to environmental policies in surrounding areas will significantly inhibit the control of environmental policies in the region, thereby making local governments haze pollution has not been effectively controlled. This is essentially a “Race to bottom” phenomenon among local governments in environmental policies.