Fiscal decentralization, government environmental preference, and regional environmental governance efficiency: evidence from China

The purpose of this study is to discuss the direct and indirect effects of fiscal decentralization on environmental governance efficiency (hereafter referred to as EGE). We first put forward hypotheses by using a theoretical framework. Subsequently, we conduct an empirical investigation by using panel data of 30 Chinese provinces over the period 2003-2015. A province-level dataset is used to measure EGE, and new indices are regressed on fiscal decentralization. Results demonstrate that fiscal decentralization has a significant negative effect on EGE and government environmental preference has a mediating effect on the relationship between fiscal decentralization and EGE. The results obtained are robust when different methods are used. A further investigation of heterogeneous responses to policy changes across regions demonstrates that the effect of fiscal decentralization on EGE presents evident regional heterogeneity.