Does Air Pollution Impact Fiscal Sustainability? Evidence from Chinese Cities

Ge Gao, Xiuting Li, Xiaoting Liu and Jichang Dong
Additional contact information
Ge Gao: School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China
Xiuting Li: School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China
Xiaoting Liu: School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China
Jichang Dong: School of Economics and Management, University of Chinese Academy of Sciences, Haidian District, Beijing 100190, China

Energies, 2021, vol. 14, issue 21, 1-16

Abstract: Fiscal sustainability is an issue of great concern for governments globally and air pollution control has become an important factor affecting fiscal sustainability. This study aims to examine the impact of air pollution on fiscal sustainability in the short and long run. We conducted an empirical analysis based on air pollution and local government debt data on China’s prefecture-level cities in 2014–2019, using regression discontinuity design (RDD) and a panel data model. The results show that air pollution reduces the debt burden of governments in the short run. However, in the long run, addressing the negative impacts of air pollution adds to the debt burden of local governments, hindering fiscal sustainability. Fiscal freedom and the level of public services significantly moderate the negative impact of air pollution on fiscal sustainability. A higher level of fiscal freedom generally indicates a greater incentive for local governments to raise pollutant emission standards, strengthen the construction of green infrastructure, and subsidize green enterprises. Furthermore, a higher level of public services reflects better infrastructure and higher levels of investment in environmental protection, which help to reduce the negative impact of air pollution. The governments are suggested to take measures to effectively control air pollution, so as to enhance fiscal stability in the long run.

Keywords: fiscal sustainability; public finance sustainability; air pollution; sustainable development (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.mdpi.com/1996-1073/14/21/7247/pdf (application/pdf)
https://www.mdpi.com/1996-1073/14/21/7247/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:14:y:2021:i:21:p:7247-:d:671021

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().