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Budget Structure and Pollution Control: A Cross‐country Analysis and Implications for China
Author(s) -
Zhang Li,
Zheng Xinye
Publication year - 2009
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2009.01160.x
Subject(s) - kuznets curve , economics , tax revenue , pollution , per capita , china , revenue , public economics , incentive , environmental tax , public finance , control (management) , environmental pollution , natural resource economics , tax reform , macroeconomics , economic growth , environmental protection , microeconomics , finance , environmental science , geography , ecology , population , demography , archaeology , management , sociology , biology
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.