Budget Structure and Pollution Control: A Cross-Country Analysis and Implications for China

16 Pages Posted: 8 Oct 2009

See all articles by Li Zhang

Li Zhang

affiliation not provided to SSRN

Xinye Zheng

Renmin University of China - School of Economics

Abstract

In the published literature, the differences in environmental performance across countries are typically explained using the Environmental Kuznets Curve. The Environmental Kuznets Curve states that pollution initially increases with economic growth. Once GDP per capita reaches a certain level, the relationship reverses. In the present paper, we provide an alternative hypothesis, where budget structure plays an important role in explaining the variations in pollution across the world: the lower the business-related taxes as a share of total tax revenue, the higher the property tax in total tax revenue and the higher the ratio of public health expenditure in total expenditure, then the stronger the incentive of pollution control and the lower the pollution level. Our empirical findings reveal that the budget structure does have an important impact on pollution control. The policy implication of this research is that effective control of environmental pollution requires changes in tax structure and expenditure assignment. This research has important policy implications for China's tax system reform and pollution control efforts.

Suggested Citation

Zhang, Li and Zheng, Xinye, Budget Structure and Pollution Control: A Cross-Country Analysis and Implications for China. China & World Economy, Vol. 17, Issue 4, pp. 88-103, July-August 2009, Available at SSRN: https://ssrn.com/abstract=1484126 or http://dx.doi.org/10.1111/j.1749-124X.2009.01160.x

Li Zhang

affiliation not provided to SSRN

No Address Available

Xinye Zheng

Renmin University of China - School of Economics ( email )

No. 59, Zhongguancun Street
Beijing, Beijing 100872
China

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