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Assessment of China's pollution levy system: an equilibrium pollution approach

Published online by Cambridge University Press:  01 February 2002

Tingsong Jiang
Economics Division, RSPAS/APSEM, Australian National University, ACT 0200, Australia.
Warwick J. McKibbin
Economics Division, RSPAS/APSEM, Australian National University, ACT 0200, Australia.


There is considerable concern about the effectiveness of China's pollution control policies. Despite government intervention, measures of pollution continue to rise. However, this does not mean that policies have necessarily been ineffective. What matters for the effectiveness of policy is not the overall level of pollution but whether the extent of pollution is improving relative to what it otherwise would have been without a policy intervention. This paper assesses the effectiveness of China's pollution levy system on water pollution, air pollution, and solid wastes using econometric techniques to estimate the effectiveness of government intervention. The paper first sets out a theoretical equilibrium model of pollution and then uses this to derive equations for the demand and supply of pollutants. This theoretical framework is then used to develop an econometrically estimated model. We find that it is possible to estimate a well-defined demand function for pollution (a reduction in environmental quality) but are unable to estimate the supply of environmental goods, suggesting that government regulation rather than consumer preferences are determining the rate of environmental degradation in China. We also find that the pollution levy system has been effective in reducing pollution relative to what it otherwise would have been in China.

Research Article
© 2002 Cambridge University Press

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An early draft of this paper was presented at the conference ‘China in the World Economy’ held at Melbourne University, 15 and 16 July. The authors thank participants of that conference as well as George Fane, Ben Smith and Alexandra Sidorenko and anonymous referees for helpful comments. The views are those of the authors and do not necessarily reflect the views of the above mentioned people nor the institutions with which we are affiliated.