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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 13, Issue 2


Volume 18 (2018)

Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

Fiscal Decentralization and Environmental Infrastructure in China

Antung Liu
  • Corresponding author
  • Resources for the Future, 1616 P St. NW, Washington, DC 20036, USA; Department of Economics, Cheung Kong Graduate School of Business, Oriental Plaza Tower E2, 2/F 1 East Chang An Ave., Beijing 100738, China
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  • Other articles by this author:
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/ Junjie Zhang
Published Online: 2013-07-24 | DOI: https://doi.org/10.1515/bejeap-2013-0082


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


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About the article

Published Online: 2013-07-24

Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 13, Issue 2, Pages 733–759, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2013-0082.

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