THE IMPACT OF DECENTRALIZATION ON AIR POLLUTION: THE EVIDENCE FROM THE TERRITORIAL REFORMS POLICY IN CHINA

Abstract

How decentralization influences environmental governance is vital in tackling environmental challenges. The literature focuses on whether decentralization is a better choice for environmental governance, but mixed findings exist. This study examined the relationship between decentralization and air pollution by exploiting China’s county-to-city upgrade (CCU) policy from 2006 to 2019. Upgrading empowers new cities in fiscal, administrative and economic matters without changing the political hierarchy. Under the cadre evaluation system, the new county-level city government has a stronger will to control land transactions by directing more land resources toward expanding industrial firms. They attract more polluting firms to promote economic development. This results in the concentration of production and emission activities, worsening air pollution. Heterogeneity tests find that decentralization will induce more stringent air pollution when the new city is located on an administrative border. In sum, decentralization without a supplementary incentive rule has a negative effect on air pollution.