More Incentive, Less Pollution: Environmental Responsibility of Local Cadres and Environment Governance

SYNOPSIS In this paper, we study how the environmental responsibility of local cadres shapes their environmental governance. Using the staggered implementation of the government environmental audit in China as a quasi-experiment, our difference-in-differences estimation shows that, after strengthening the environmental responsibility of city leaders, pilot cities experience a significant increase in fiscal environmental expenditure and a reduction in air pollution. The effect is more pronounced among cities whose leaders have stronger promotion incentives, but less pronounced among cities with higher economic costs on pollution governance. In addition, firms located in pilot cities exhibit a significant increase in environment-related investments and green patent applications, which is motivated by government-awarded environmental subsidies. Overall, our results shed new light on the role of the environmental responsibility of city leaders in environmental governance and provide policy implications to promote environmental, social, and governance (ESG) practice and sustainable transition in a top-down approach. Data Availability: Data will be made available on request.