New evidence on the soft budget constraint: Chinese environmental policy effectiveness in SOE-dominated cities *

Mathilde Maurel and Thomas Pernet ()
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Thomas Pernet: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne

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Abstract: This paper analyses the efficiency of a set of environmental measures introduced by the 11th Five Years Plan (FYP) in China in 2006, using a rich and unique dataset borrowed from the Ministry of Environmental Protection (MEP) and the State Environmental Protection Agency (SEPA). By exploiting plausibly exogenous variation in regulatory stringency generated by the targets' system in China across provinces in 2006, we find evidence that pollution-intensive cities substantially decreased the emission of SO2, whereas cities where the presence of SOEs (State Owned Enterprises) is large did not. We interpret these results as pointing to the evidence of a still ongoing SBC (Soft Budget Constraints) surrounding Chinese SOEs. The findings are robust to the inclusion of different specifications of fixed effects, and other key determinants of firm pollution. Moreover, we investigate what are the main factors behind the no-compliance to the regulations: the overlapping (or not) with TCZ (SPZ, Coastal) cities where the environmental (growth) policies are prioritized, * The authors are grateful to William F. Shughart II and two anonymous reviewers, whose comments improved the manuscript considerably. We are also very greatful to Zhao Ruili and Zhou Ling for their precious help in collecting the data from the China Environment Statistics Yearbook.

Keywords: Environmental regulation; China; Kornai; Soft Budget Constraint; Differencein-Difference estimation Q53 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-cna and nep-env
Note: View the original document on HAL open archive server: https://hal.science/hal-03511874
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Published in Public Choice, 2021, 187 (1-2), pp.111-142. ⟨10.1007/s11127-020-00834-1⟩

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Journal Article: New evidence on the soft budget constraint: Chinese environmental policy effectiveness in SOE-dominated cities (2021)
Working Paper: New evidence on the soft budget constraint: Chinese environmental policy effectiveness in SOE-dominated cities * (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03511874

DOI: 10.1007/s11127-020-00834-1

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