Fiscal decentralization and local environmental governance when performance evaluation Matters

Jinhuang Chen and Xuewen Long

Applied Economics, 2025, vol. 57, issue 54, 9215-9229

Abstract: The impact of fiscal decentralization on social and economic development has been widely studied; however, there is extensive debate on whether fiscal decentralization can effectively promote local environmental governance. This article aimed to provide a new perspective by revealing the causality between fiscal decentralization and environmental governance. With the policy of disclosing the Air Quality Index (AQI) in China, we constructed a quasi-experimental framework and conducted an empirical analysis using a city dataset from 2007 to 2019 in China. The empirical results show that (1) whether fiscal decentralization contributes to local environmental governance depends on performance evaluation. (2) The governance effect is more pronounced in areas closer to air quality monitoring stations, regions that prioritized haze in their evaluation, and regions with more severe air pollution. The results of this article indicate that performance evaluation plays an important moderating role in the relationship between fiscal decentralization and environmental governance. Enhancing the level of decentralization and performance evaluation are effective strategies for enhancing the governance capacity of local governments.

Date: 2025
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DOI: 10.1080/00036846.2024.2411464

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