When fiscal and administrative decentralization vary in pace: the impact of fiscal decentralization on local environment performance

This study aims to explore how fiscal decentralization affects local environmental performance when fiscal and administrative decentralization reforms proceeded simultaneously. We assembled a unique panel data of 2504 counties between 2000–2022 in China to investigate the impacts of fiscal decentralization on local environmental performance with local environmental administrative system undergoes recentralization. Exploiting a stacked difference-in-differences strategy, we find that the fiscal decentralization has a significantly positive effect on local environment performance, both in centralized and decentralized environment administrative systems. We also find that fiscal decentralization alleviated the problem of ‘local capture’ and ‘spillover effect’ that often occurred in local environment performance. Those results are robust to a series of robustness checks. This research highlights the interactions between fiscal and administrative decentralization on environment governance and sheds light on understanding the recent trend towards ‘reverse decentralization’.