The social welfare effect of environmental regulation: An analysis based on Atkinson social welfare function

Abstract

By controlling the negative externalities of pollution, environmental regulation contributes to social welfare. This article introduces the most legislatively influential environmental regulation implemented in China, the Air Pollution Prevention and Control Action Plan, to explore the social welfare effect of environmental regulation. A theoretical model simulates variations in social welfare under environmental regulation, which is defined as a summation of economic welfare and environmental welfare. Then, the Atkinson social welfare function is applied to measure social welfare in 280 Chinese cities during 2007–2019, and difference-in-difference model confirms that environmental regulation improves social welfare, it makes greater promotion in economic welfare (0.1210) than in environmental welfare (0.0032), and these effects take 2 years to be effective. Overall, except for controlling pollution, environmental regulation improves social welfare by stimulating economic growth and alleviating income inequality, that is, the economic expansion and equal distribution. However, environmental regulation increasing social welfare has a siphon effect, since it only blesses resource-rich or market-active cities, and an adequate population is the basis for the growth of social welfare. It is required to be vigilant about deepened regional gap in social welfare caused by environmental regulation.