DO FISCAL INCENTIVES CURB ENVIRONMENTAL POLLUTION? EVIDENCE FROM CHINA’S ENERGY SAVING AND EMISSION REDUCTION POLICY

Abstract

This paper explores the impact of fiscal incentives on environmental pollution by employing China’s Energy Saving and Emission Reduction (ESER) fiscal policy as a quasi-natural experiment. Using the STIRPAT framework and a difference-in-differences approach with city-level panel data from 2006 to 2019, we find that fiscal investment significantly reduces pollution emissions. However, the policy’s effects diminish over time and are more evident in cities with greater fiscal autonomy. Mechanism analysis shows that fiscal investment enhances green innovation, highlighting its vital role in advancing environmental sustainability.