Abstract
AbstractHow do nationwide environmental regulations produce heterogeneous effects on the economic activities of manufacturing firms located in places with differently incentivized city leaders? This paper answers this question by drawing on a set of firm‐based pollution regulations in China from 2007 to investigate the relationship between political incentives and the effects of environmental regulations. I show that when a city's Party secretary has more incentives to be promoted, the adverse impacts on production by regulated firms tend to increase, but these losses for regulated firms are compensated by gains for other unregulated firms in polluting industries. Therefore, no overall reduction is seen in the manufacturing activities of the polluting industries. The findings suggest that if multitask problems for local governments are properly addressed, environmental regulations can effectively reduce the pollution and avoid large unintended costs to economic growth.
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