Government Size, Fiscal Transparency, and Environmental Performance: Evidence from Chinese Prefecture-level Cities

The environmental impact of government size is a complex issue, yet the pollutant-specific effects and the role of institutional factors remain underexplored. This study examines the impact of local government size on sulphur dioxide (SO 2 ) emissions and industrial wastewater discharge in Chinese prefecture-level cities, and the moderating role of fiscal transparency. The results reveal that larger local government size increases SO 2 emissions but reduces wastewater discharge. However, both effects are weakened by fiscal transparency. The findings suggest that local governments may strategically compromise on regulating SO 2 emissions to cope with intensified fiscal pressure from government expansion, while allocating increased governance resources to wastewater treatment to pursue political performance. This implies that policymakers should closely monitor such strategic shifts and prioritise establishing fiscal transparency to limit speculative behaviour and ensure that enhanced governance capacity ultimately serves the broader public interest.