Evaluating the environmental impacts of Chinese decentralization policies toward SDG 13

Abstract As local governments play a decisive role in attaining sustainable development goals, notably SDG 13 (climate action), decentralization policies offer the flexibility to modify climate strategies according to local necessities and enhance resource distribution. However, the simultaneous demands for economic advancement and environmental conservation pose notable hurdles. Drawing on a county‐level time‐varying quasi‐natural experiment, the results explore that fiscal decentralization, when implemented alone, significantly reduces firm pollution emission intensity. This pollution reduction is attributed to its alleviating fiscal stress on counties. In contrast, administrative decentralization is associated with increased pollution emissions, driven by tax preferences and competition in infrastructure investment. Moreover, the study reveals that fiscal and administrative decentralization reforms are complementary in their impact on a firm's intensity of pollution emissions. Furthermore, the joint implementation of complementary decentralization reforms is observed to decrease the intensity of pollution emissions in developed counties, particularly in areas characterized by high institutional quality and improved mobility. The study provides insights into the interplay between different decentralization policies and their contextual factors, enhancing our understanding of how nations can articulate decentralization policies to adopt an informed and context‐sensitive approach in crafting a balance between economic growth and environmental sustainability.