Evaluating the Effect of Government Emission Reduction Policy: Evidence from Demonstration Cities in China

The effectiveness of government environmental policies is pivotal to environmental quality and provides the reference for further policy design. This paper estimates the effect of comprehensive demonstration of fiscal policy for ECER (Energy Conservation and Emission Reduction) on pollution emissions in Chinese cities with the sample period from 2003 to 2016, which is an important practice for policy integration. We find that this policy reduces the industrial SO(2) (sulfur dioxide) emission by 23.8% on average and the industrial wastewater emission by 17.5% on average. This policy, implemented by Chinese government, has effectively achieved its target for emission reduction. A series of robustness checks are also conducted to verify the baseline results. Mechanism analysis indicates that this policy has the effect by the change in the industry structure and the enhancement of fiscal capacity, especially the capacity of fiscal revenue. Some policy recommendations, such as laying emphasis on the policy integration, integrating the financial resources of governments and expanding the demonstration effect, are proposed in order to facilitate green development in Chinese cities.