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Improving the environmental quality of fiscal policy

April 7, 2016

In China, the achievements of economic development is significant, and the expense of the environment is also very heavy: the deteriorating quality of the environment with fast economic growth indicating serious environmental pollution, following the path of developed countries’ controlling after pollution. Air pollution is increasingly serious day after day, so is the water pollution situation and. The current situation of pollution controlling is far behind the ecological damage to ecosystems. It is imminent to strengthen ecological protection for preventing simplification of forest ecosystems in the number and quality and severe soil erosion and desertification.


These problems are not only related to the particular stage of development, but also closely related to the system deficiencies. Fiscal policy as an important policy tool for national implementation of macroeconomic regulation and control, has an important influence to improve the market mechanism and to promote integrated and coordinated social and economic development. Especially the green low-carbon development cycle, whose externalities are caused by market failure, presents characteristics of public goods and must be relied on policy measures to solve. Thus, while supporting the construction of ecological civilization and economic policy includes industrial policy, fiscal policy, credit and investment policies and other policy tools, especially fiscal policy, due to its flexible features, has been an important policy tool for the governments to strengthen environmental protection.


Fiscal policy plays a leading role in improving the environmental quality, which mainly reflects in the incentives for energy conservation, energy diversification and the development of new energy and environmental protection and other aspects of functions. These functions mainly perform in three aspects: First, encourage positive externality. The government gives respective tax breaks or subsidies to the activities which possesses the positive externalities to resource conservation and environmental protection. Second, through financial subsidies, accelerated depreciation, investment tax credits and other expenditure policies, such as subsidies for energy-saving electronic products, the government increases support for energy-conservation and environmental-protection industry to encourage and attract investment in the formation of stable investment in environmental protection channels. Third, through financial investment, tax incentives and other measures to encourage energy-saving technology, environmental protection and new technology development and promotion.


Public-goods characteristics of the ecological environment determines the necessity of financial support. In order to achieve national strategic priority to emission reduction targets, the state finance department issued many institutional policies, financial measures, and the effect is very obvious. It must be noted that China's current ecological situation is still very grim, and emissions of various pollutants and carbon emissions are still much higher than the capacity of the environment, fiscal policy is still not qualified to the requirements of supporting the construction of ecological civilization. It is necessary to establish and improve financial support new eco-friendly input mechanisms, namely the increased financial support for investment in eco-friendly tilt, and optimize the financial structure to support eco-friendly investment, innovation and financial investment instruments to explore the establishment of a diversified investment mechanism.


In addition, to the macro level, the comprehensive economic and social effects of environmental protection is greater; and in the local level, environmental protection tends to harm local economies, and local economies suffer. To solve these problems and to achieve a eco-friendly balance between macro interests and local interests, we need to put ecological considerations into account in financial transfer payment system, and build inter-governmental ecological transfer-payment system and establish transfer-payment system from central government to local government and from local government to local government and inter-provincial government to improve the environmental quality.