Intergovernmental competition, industrial spatial distribution, and air quality in China

Abstract

As clean air is a public good, local governments play an irreplaceable role in environmental protection. This study examines how intergovernmental competition affects air quality in China. The results reveal that intergovernmental tax competition increases regional sulfur dioxide and haze emissions and worsens regional air quality, while competition in infrastructure investment does not have such effects. Furthermore, tax competition will affect air quality through industrial spatial distribution. Intergovernmental competition attracts low-technical content capital flowing into where it is more aggressive, triggering a “race to the bottom” effect on industrial structure and attracting similar industries through an agglomeration economy. On this basis, this study uses the Spatial Durbin model to test the spatial impact of intergovernmental competition on air quality. The effects are manifested in two forms: pollution spillover and pollution transfer. Pollution spillover has a major effect on the air quality of neighboring regions at close geographical distances, while pollution transfer is mainly responsible for the air quality of regions with similar levels of economic development. The relocation of capital and industries between regions due to intergovernmental competition causes the spillover and transfer effects on air quality. In addition, this study analyzes the regulatory effect of fiscal decentralization and environmental regulation on the impact of intergovernmental competition on air quality.