Environmental Target Responsibility System, Governance, and Economic Growth

This paper develops an economic growth model incorporating China's Environmental Target Responsibility System(ETRS) to analyze its impact on both economic growth and social welfare. We find that the ETRS's effect on economic growth is complex,resulting from the interplay of three key factors: its potential to improve environmental quality, its potential dampening effect on total factor productivity(TFP), and its influence on local government spending on environmental governance. A balanced ETRS can improve environmental quality, promote technological innovation, and enhance social welfare.However, excessively stringent targets and overly emphasized responsibility may lead to declines in both economic growth and social welfare. From the perspective of balancing economic growth and social welfare, we find that the ETRS that maximizes economic growth is less stringent than the ETRS that maximizes social welfare. Crucially, the economic growth cost of shifting from a growth-maximizing to a welfare-maximizing ETRS is minimal.In other words, significant improvements in environmental quality and public well-being can be achieved without substantially sacrificing economic dynamism. This paper attempts to model China's unique environmental target assessment system within the framework of endogenous growth theory, offering a new perspective for understanding the dynamic relationship between economic growth and environmental quality in China.