Less pollution under a more centralized environmental system: Evidence from vertical environmental reforms in China

This paper investigates the effects of a series of environmental centralizing reforms (the so-called vertical environmental reforms) in China on polluting firms' SO2 emission. Using manually collected data on when/where the reforms took place, we conduct the analysis in a difference-in-differences framework, controlling for a rich set of fixed effects and selection variables on the reforms. Our empirical results show that after the reforms, Chinese polluting firms have undergone a 10.6% abatement in SO2 emission; and their installed coal boilers have decreased by 9.6%. The firms that are important employment and tax-revenue providers in local economy experience more decrease in their SO2 emission. Using geo-information on firms' location, we also find that the firms close to county borders are more affected by the reforms.