Fiscal Incentives and Environmental Infrastructure in China

Resources for the Future Discussion Paper No. 12-36

33 Pages Posted: 22 Oct 2012 Last revised: 2 Aug 2013

See all articles by Antung Anthony Liu

Antung Anthony Liu

Resources for the Future; Cheung Kong Graduate School of Business

Junjie Zhang

Duke Kunshan University; Duke University

Date Written: August 1, 2013

Abstract

This article provides new evidence that fiscal decentralization has supported economic development by incentiving cities to provide more sewage infrastructure. As a result of the 1994 tax reform, Chinese cities retained different shares of their value-added tax (VAT). Exploiting the persistence of this sharing system, we use the VAT share in 1995 as an instrument for the present fiscal incentives. We find that cities with higher fiscal incentives built significantly more sewage treatment capacity between 2002 and 2008. This result suggests that fiscal incentives can play a strong role in the development of city-level infrastructure.

Keywords: China sewage, water pollution, fiscal decentralization, fiscal federalism, tax sharing

JEL Classification: H4, H54, H77, Q53, Q56

Suggested Citation

Liu, Antung Anthony and Zhang, Junjie, Fiscal Incentives and Environmental Infrastructure in China (August 1, 2013). Resources for the Future Discussion Paper No. 12-36, Available at SSRN: https://ssrn.com/abstract=2165500 or http://dx.doi.org/10.2139/ssrn.2165500

Antung Anthony Liu (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Junjie Zhang

Duke Kunshan University ( email )

No. 8 Duke Avenue
Kunshan, 215316
China
+86 512 36657068 (Phone)

HOME PAGE: http://junjiezhang.org

Duke University ( email )

No. 8 Duke Avenue
Kunshan, 215316
China
+86 512 36657068 (Phone)

HOME PAGE: http://junjiezhang.org

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