Fiscal expenditures on science and technology and environmental pollution: Evidence from China

Studying the driving factors of environmental pollution is of great importance for China. Previous literature mainly focused on the cause of national aggregate emission changes. However, research about the effect of fiscal expenditures on science and technology (FESTs) on environmental pollution is rare. Considering the large gap among cities in China, it is necessary to investigate whether and how FESTs affect environmental pollution among cities. We adopted three kinds of typical environmental pollutants including sulfur dioxide (SO2) emissions, wastewater emission, and atmospheric particulate matter less than 2.5 micrometers in diameter (PM2.5). Using the data of 260 prefecture-level cities over ten years in China, we found that FESTs play a significantly positive role in reducing sulfur dioxide (SO2) emissions and PM2.5 concentrations, but fail to alleviate wastewater emissions. Specifically, for every 1% increase in FESTs, SO2 emissions were reduced by 5.317% and PM2.5 concentrations were reduced by 5.329%. Furthermore, we found that FESTs reduced environmental pollution by impeding fixed asset investments and by promoting research and development activities (R&D). Moreover, the impacts of FESTs on environmental pollution varied across regions and sub-periods. Our results are robust to a series of additional checks, including alternative econometric specifications, generalized method of moments (GMM) analysis and overcoming potential endogeneity with an instrumental variable. Our findings confirm that government efforts can be effective on pollution control in China. Hence, all governments should pay more attention to FESTs for sustainable development and environmental quality improvements.