Political incentives and pollution reduction in China: Evidence from firm-level emissions data

Do local political officials' promotion incentives affect pollution? While previous research has mostly focused on developed countries and employed more aggregate data, we answer this question in the context of China, an emerging economy, using confidential, granular (firm-level) data. Our analysis demonstrates that firms' sulfur dioxide (SO2) emissions as well as emissions of other pollutants decline during periods of heightened promotion incentives for local officials across Chinese cities. The evidence suggests that the reduction in emissions was likely due to end-of-pipe treatments, instead of improvements in production technology. We find that non-stateowned enterprises, which likely have less bargaining power and face stricter regulatory constraints compared to state-owned enterprises, experience a grater reduction in their emissions during the promotion evaluation period for local officials. We document that stricter enforcement of existing environmental regulations is likely driving the decline in emissions, suggesting that perhaps during the promotion period, more pressure is exerted on local environmental protection agencies to monitor pollution.