Keywords：环境政策；环境经济；Environmental Prevention and Treatment； Strategic Interaction；Spatial Econometrics
Author：Xinye Zheng, Yihua Yu, Fanghua Li, Xinyan Chen
Date：2008-03-01
Summary：
Why public investment in environmental investment and treatment (EPT) as percentage of GDP remains so low in China even though the central government has been stressing how a healthy environment can be vital on a nation’s economy and the quality of life of human beings? What factors affect a local government’s decision making on EPT spending? Are local regulators engaging in strategic environmental policy making? These questions are addressed in this empirical study. Using a cross-sectional data set of 249 Chinese cities in 2005, this study applies spatial econometric methods to examine the factors that determine public EPT spending in a decentralized economy. The empirical results reveal that city governments appear to behave similarly on making environment spending decisions following a common shock. In addition, city governments do not incorporate their neighbors’ healthcare expenditures behaviors into their own decision makings on EPT expenditures, which leads to suboptimal provision of EPT investments. Furthermore, city governments’ fiscal capacity, industrial sulfur dioxide emissions, and urbanization variables are identified to be major determinants. These findings have important implications for municipal policy makers in making budgetary decisions.
