Will Chinese System of Fiscal Decentralization Inhibit the Environmental Investment?

Abstract

This paper mainly investigated the effect of Chinese system of fiscal decentralization on the environmental investment. Being different from the previous studies that believed fiscal decentralization would inhibit the environmental investment, this paper believed that the fiscal decentralization both had a substitution effect and an income effect on the environmental investment, there was a U-type relationship between the both. Thus, a fiscal system reform has to be done, and more than anything else, the transfer payment from the exchequer to the less developed areas needs to be enhanced to solve the environmental issue of the less developed areas.