Go with the wind: Local public financing and air pollution
Mengxia Zhou, Yongbin Xu
Keywords:
local public financing; air pollution; municipal corporate bonds; local government financing vehicles; land finance
Abstract:
The intertwining of local public financing and land finance is a direct result of China’s economic growth and fiscal reforms. Local government financing vehicles (LGFVs), which are secured by land, subsidies and other implicit government guarantees, are created to finance infrastructure projects. The continued growth of LGFVs debt intensifies competition for land to attract investment, encouraging firms to expand their production scale, which in turn exacerbates pollution. Exploiting municipal corporate bonds (MCBs) issuance by LGFVs, we find that local public financing exacerbates air pollution, and the above conclusion remains robust to instrumental variables and robustness tests. Specifically, when local governments expand the supply of industrial land, it intensifies competition for land and attracts high-consumption, high-pollution, low-value-added firms, thereby increasing air pollution. Meanwhile, the better the financial situation and the stricter the environmental regulation, the less significant is the negative impact of local public financing on air pollution. This study provides novel evidence on the non-economic consequences and social welfare of local public financing, highlighting the underlying logic of prioritizing economic growth over environmental protection. Meanwhile, our study further reveals that competition for land is a driving factor that local public financing exacerbates pollutant emissions among the largest polluters and manufacturers nationwide.
Fulltext download:
 Go with the wind: Local public financing and air pollution [PDF file] [Filesize: 354.59 KB]
 10.7441/joc.2025.02.08
Zhou, M., & Xu, Y. (2025). Go with the wind: Local public financing and air pollution. Journal of Competitiveness, 17(2). https://doi.org/10.7441/joc.2025.02.08
|
