This paper mainly investigated the effect of Chinese system of fiscal decentralization on the environmental investment. Being different from the previous studies that believed fiscal decentralization would inhibit the environmental investment, this paper believed that the fiscal decentralization both had a substitution effect and an income effect on the environmental investment, there was a U-type relationship between the both. Thus, a fiscal system reform has to be done, and more than anything else, the transfer payment from the exchequer to the less developed areas needs to be enhanced to solve the environmental issue of the less developed areas.
The literatures studying the effect of fiscal decentralization on the environment treatment usually share a common issue, that is, no agreement has been reached as to the mechanism of action of the effect of fiscal decentralization on the environment treatment. Zhang Xinyi (2014) referred to this process of conduction as “black box”, and tried to explain it from three perspectives which were structure of fiscal expenditure, central transfer payment intensity and choice of local industry policies [
The environment treatment investment fund of a place was mainly originated from the governmental financial investment, enterprise investment, investment of environmental protective commonweal organization and so on, among which governmental financial investment played a leading role. It is thus clear that the fiscal decentralization system had a direct influence on the local environmental investment, the economic incentive and political incentive under the system of fiscal decentralization made the local government expenditure to be partial to the economical public goods (Fu Yong, 2010) [
Besides, there are a few scholars believing that the regions having a high percentage of fiscal decentralization were able to provide a better financial support and technical conditions for environment treatment (Tan Zhixiong and Zhang Yangyang, 2015) [
This paper took the local government’s environmental investment as a variable being explained and the degree of fiscal decentralization as an explanatory variable. The quadratic term of fiscal decentralization has been included into the model in order to test whether the fiscal decentralization is in a U-shaped relation with the environmental investment, and the first order lag term of environmental investment was introduced as an explanatory variable, the dynamic panel model has been used for estimation, the basic form of the model is as follows:
where
In this paper, we select the provincial panel data of 1997-2013 in China as a sample, because this paper focuses on the impact of the fiscal decentralization between central government and province on the investment of environmental governance. The provincial panel data from 1997 to 2013 was used for empirical test in this paper, the Tibet region was culled, Chongqing was taken as a single cross-section sample. Before the estimation is made, it is necessary to explain the variable selection, data source and processing. In addition to the variable being explained and explanatory variable, the selection of control variable includes the economic development level, industrial structure, intensity of competition between governments, degree of opening to the outside world and population density.
As to the environmental investment of variable being explained, the amount of investment for treating the industrial wastewater, the amount of investment for treating the industrial waste gas and the amount of investment for treating the industrial solid wastes in various regions over the years were taken as variable being explained and a robustness test has been done to one another, to eliminate the endogenous effect of the economic development level, the ratio of amount of investment for treating the environment to GDP was taken as a variable being explained.
The budgetary fiscal expenditure at the provincial corresponding level/budgetary fiscal expenditure at the central corresponding level was taken as the degree of fiscal decentralization, the industrial added value in each province over the years was taken as the economic development level, the secondary industry-tertiary industry ratio was taken as the industrial structure, the proportion in national FDI accounted for by provincial FDI in that very year was taken as the intensity of competition between governments, the proportion in local GDP accounted for by total export-import volume was taken as the degree of opening to the outside world, the provincial area divided by the provincial permanent resident population at the end of a year was taken as the population density. The above data was mainly originated from China Statistical Yearbook, China Environment Yearbook, Almanac of China’s Population, Finance Yearbook of China.
Before the regression is done, it is necessary to examine the distribution of each variable and its abnormal value. The feature of sample value of above-mentioned variables being explained, explanatory variables and control variables that have been established was described as follows (
By the use of above-mentioned model, the system generalized method of moment was used for estimation, the investment for treating the industrial waste gas/GDP, investment for treating the industrial waste water /GDP and investment for treating the industrial solid wastes /GDP were taken as variable being explained for robustness test, of which the regression result of two step method was as follows.
It can be seen from the regression result that (
This paper investigated the effect of fiscal decentralization on the environmental investment in China by the use of provincial panel data for empirical test; we believed that the degree of fiscal decentralization was in a U- shaped relation with environmental investment. The fiscal decentralization both had a substitution effect and an income effect on the environmental investment. When the fiscal capacity is weak, the substitution effect plays a leading role, fiscal decentralization will make the local governmental expenditure have a structural bias which
Variable | Sample number | Mean value | Standard deviation | Minimum value | Maximum value |
---|---|---|---|---|---|
Aggregate investment for industrial treatment/GDP | 510 | 68.8070 | 55.9838 | 3.82914 | 454.758 |
Investment for treating the industrial waste gas /GDP | 510 | 34.3727 | 43.7886 | 0.280720 | 605.125 |
Investment for treating the industrial waste water /GDP | 510 | 23.9365 | 22.0773 | 0.502613 | 192.493 |
Investment for treating the industrial solid wastes /GDP | 510 | 3.98703 | 5.83558 | 0.002268 | 55.0776 |
Degree of fiscal decentralization | 510 | 0.111760 | 0.072878 | 0.01102 | 0.410858 |
Economic development level | 510 | 1055.32 | 1206.72 | 21.272 | 7391.60 |
Industrial structure | 510 | 1.2454 | 0.304921 | 0.289987 | 2.02276 |
Intensity of competition between governments | 510 | 0.033333 | 0.046797 | 0.000101 | 0.257553 |
Degree of opening to the outside world | 510 | 0.3106758 | 0.394605 | 0.032045 | 1.72148 |
Population density | 510 | 407.8525 | 559.534 | 7.11047 | 3808.85 |
Explanatory variable | (SYS-GMM two step method) | |||
---|---|---|---|---|
Aggregate investment for industrial treatment/GDP | The investment for treating the industrial waste gas/GDP | Investment for treating the industrial waste water/GDP | Investment for treating the industrial solid wastes/GDP | |
The first order lag of each variable being explained | 0.244*** | 0.166*** | 0.259*** | 0.0500*** |
(0.0540) | (0.0308) | (0.0414) | (0.0185) | |
Degree of fiscal decentralization | −655.9*** | −441.2*** | −316.6*** | 22.90 |
(80.72) | (68.43) | (67.12) | (31.90) | |
The quadratic term of degree of fiscal decentralization | 586.4** | 335.9* | 650.4*** | 0.300 |
(232.8) | (177.4) | (235.9) | (104.7) | |
Economic development level (taking the logarithm) | 22.16*** | 20.68*** | 1.027 | −1.600*** |
(5.986) | (6.217) | (2.373) | (0.522) | |
Industrial structure | 12.41 | −19.17*** | 20.93*** | −2.572* |
(23.01) | (5.724) | (2.343) | (1.521) | |
Intensity of competition between governments | −152.3* | −207.9 | −89.25 | −7.818 |
(377.0) | (343.2) | (100.3) | (34.75) | |
Degree of opening to the outside world | 46.29* | −23.28 | 5.371 | 3.584** |
(24.65) | (21.69) | (5.513) | (1.517) | |
Population density | −19.35 | −10.98*** | −5.925 | −3.093*** |
(14.52) | (3.183) | (4.539) | (0.337) | |
Constant term | 47.87 | 34.18 | 41.51 | 30.58*** |
(88.58) | (25.57) | (28.37) | (2.564) | |
Over-distinguished P value (Sargan test ) | 1 | 1 | 1 | 1 |
Second order serial correlation testing P value | 0.1512 | 0.5532 | 0.3299 | 0.2710 |
Sample number | 480 | 480 | 480 | 480 |
Note: *, **, *** respectively represent being significant at the level of 10%, 5%, 1%.
in turn will inhibit the environmental investment; when the fiscal capacity is strong, the income effect plays a leading role, fiscal decentralization can provide a fund support for environmental investment. Thus, a fiscal system reform has to be sped up, and the transfer payment from the exchequer to the less developed areas needs to be enhanced to enable the fiscal decentralization system in the less developed areas to exert an “income effect”.
Dahua Kang, (2016) Will Chinese System of Fiscal Decentralization Inhibit the Environmental Investment?. American Journal of Industrial and Business Management,06,439-443. doi: 10.4236/ajibm.2016.64040