Local government competition on setting emission reduction goals

Abstract

The incentive of environmental protection for local authorities is important for large and unitary states. Local authorities may be competed for both of environmental and economic performance. However, there is possibly trade-offs between the two performances in the short term. This paper focus on the incentives among China's local governments. Our empirical research finds that local governments compete for setting ambitious goals of pollution emission reduction according to their goals release date, and the increase in emission reduction goal leads to a decline in real economic growth. One of the transmit channels is that high goals result in more efforts on emission reduction and then crowding out the economic growth. Local governments are inclined to set more ambitious emission reduction goals, even when doing so comes at some cost of reduced economic growth. The results are robust to regression methods, emission types, and the variable choices of economic growth in different years. It implicates that if the superior governments strengthen the local authorities' competition for environment protection and reduce that for economic growth, it would improve the environment performance effectively. Such competition mechanism may include but not be limited to official promotion based on environment performance.