To investigate the effects of regulation on environmental pollution under Chinese-style fiscal decentralization, this research analyzes annual data over the period 2003 to 2017 covering 30 provinces in China with the spatial economic model. The empirical results show significant spatial agglomeration effects on the emissions of wastewater, sulfur dioxide, and solid waste. Environmental regulation helps reduce discharge of wastewater and solid waste, but does not help reduce the emission of sulfur dioxide; because there is significantly positive externality in treating pollutants with high fluidity, cost is larger than revenue for local governments. The relationship between fiscal decentralization and pollutants shapes an inverted U-shaped curve. We finally offer some implications in accordance with our empirical finding, such as the intensity of environmental regulation should be suitable for economic development, different measures should be taken based on the fluidity of pollutants, and a new evaluation system should be established.
Keywords: Environmental regulation; Fiscal decentralization; Spatial economic model.