Does Air Pollution Impact Fiscal Sustainability? Evidence from Chinese Cities

Ge Gao,Jichang Dong,Xiuting Li,Xiaoting Liu

doi:10.3390/en14217247

Abstract

Fiscal sustainability is an issue of great concern for governments globally and air pollution control has become an important factor affecting fiscal sustainability. This study aims to examine the impact of air pollution on fiscal sustainability in the short and long run. We conducted an empirical analysis based on air pollution and local government debt data on China’s prefecture-level cities in 2014–2019, using regression discontinuity design (RDD) and a panel data model. The results show that air pollution reduces the debt burden of governments in the short run. However, in the long run, addressing the negative impacts of air pollution adds to the debt burden of local governments, hindering fiscal sustainability. Fiscal freedom and the level of public services significantly moderate the negative impact of air pollution on fiscal sustainability. A higher level of fiscal freedom generally indicates a greater incentive for local governments to raise pollutant emission standards, strengthen the construction of green infrastructure, and subsidize green enterprises. Furthermore, a higher level of public services reflects better infrastructure and higher levels of investment in environmental protection, which help to reduce the negative impact of air pollution. The governments are suggested to take measures to effectively control air pollution, so as to enhance fiscal stability in the long run.

Highlights

Environmental problems, such as air pollution, are issues of global concern
The results show that the short run, for every 1% increase in PM25, the debt burden drops by 1.2%
This study found that air pollution negatively relates to the government’s debt burden in the short run, possibly because governments loosen their environmental policies when competing in GDP championships, pursuing economic development and investing less in green infrastructure

Summary

Introduction

Environmental problems, such as air pollution, are issues of global concern. As the world’s largest developing country, China has attached great importance to managing the prevention and control of atmospheric pollution. Since the 18th National Congress of the Chinese Communist Party in 2012, the Chinese government has made the “Blue Sky. Protection Campaign” a top priority in the uphill battle for the prevention and control of pollution and has declared a war on pollution with unprecedented determination and strength. Air pollution remains a serious problem and there remain major challenges in controlling it. The PM25 concentration in China shows a downward trend (Figures 1 and 2) [1,2,3], but there is still a long way to go before it falls below the World Health Organization’s standard of 10 micrograms per cubic meter

Objectives

Results

Conclusion