Effects of fiscal decentralisation on the environment: new evidence from China

The aim of this paper is to explore the environmental effects of fiscal decentralisation from theoretical and empirical perspectives. We first analyse the dynamic relationship between fiscal decentralisation and the environment using an endogenous growth model. Our findings demonstrate that fiscal decentralisation and environmental pollution display an inverted U-shaped relationship. We then use provincial panel data from 1998 to 2015 in the empirical investigation of CO₂ emissions in China. Our findings show that empirical results verify the correctness of the theoretical results. The results obtained are robust using different methods. The findings of this work may help China's central government and local governments in addressing the problem of CO₂ emissions by using a reasonable degree of fiscal decentralisation.