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How does environmental regulation shape economic development?: a tax competition model of China

Year: 2025

Type: article

Abstract: We propose a novel theoretical framework to study how environmental regulation shapes economic development in a developing country such as China. We develop a dynamic tax competition model in which local governments, located in development zones, use variation in taxes to attract workers to their jurisdictions. Their objective is to maximize tax revenue less local health costs that are proportional to local pollution. Our main result is that competition generates a reallocation of productive factors when national regulation is introduced. Local governments in more productive regions set greater production taxes than in other regions. This makes workers and output to shift from more to less developed regions of the country.

Source: Graduate Institute Geneva Institutional Repository (Graduate Institute of International and Development Studies)

DOI: 10.71609/iheid-m9j3-ea41

Authors: Naso, Pedro, Swanson, Timothy M

Institution: Graduate Institute of International and Development Studies

Language: English

Topic: Local Government Finance and Decentralization

Subfield: Political Science and International Relations

Field: Social Sciences

Domain: Social Sciences

SDGs: Decent work and economic growth, Peace, justice, and strong institutions

Open Access status: green

Funders: National Science Foundation, Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung, Peking University