Reassigning who pays: fiscal authority division and air quality improvement in China

This study examines the impact of China’s reform of environmental fiscal authority and expenditure responsibilities on air pollution. Using city-level panel data and a difference-in-differences approach, we find that the reform significantly improved urban air quality. Mechanism analysis shows that this improvement stems from improved provincial coordination, stronger local enforcement, and targeted reductions in industrial emissions. The effects are more pronounced in major river basins and in non-resource-based cities. Overall, the study demonstrates that the clarity and division of fiscal responsibilities play a decisive role in shaping environmental outcomes, thereby extending the understanding of environmental federalism and offering theoretically grounded and policy-relevant insights for China’s ongoing new round of fiscal and taxation system reforms.