Racing to the bottom or the top? Strategic interaction of environmental protection expenditure among prefecture-level cities in China

Competition and cooperation in the environmental governance of cities are popular around the world. However, empirical research based on the prefecture-level city level in China is rare. Since the central government of China proposed to strengthen the construction of ecological civilization, whether there are strategic interactions of “race to the bottom” or “race to the top” among local governments is an important issue of academic and public interest. This paper constructs a game-theoretic model to reveal the strategic interactions of environmental governance among local governments. And then, based on the data of 221 prefecture-level cities collected from 2007 to 2018, the spatial econometric model is used to conduct multi-dimensional testing “race to the bottom” behavior of environmental protection expenditure among local governments. Moreover, this paper further analyses the impact of performance assessment indicators on the strategic interactions of local governments, so as to provide policy reference for improving environmental public welfare. Empirical results suggest that local governments in China show strategic imitation in environmental protection spending decisions, which is manifested as “race to the bottom”, and this behavior is gradually weakening with the strengthening of environmental protection assessment. Furthermore, environmental performance indicators relieve the government's strategic imitation, while economic performance indicators intensify the government's strategy imitation. Thus, reasonable performance evaluation indicators are conducive to benign strategic interaction among governments. Finally, the current environmental protection expenditure has not yet significantly affected pollution reduction, providing new evidence for the “race to the bottom” behavior of local governments. Based on the findings of our study, the central government should optimize the performance evaluation system of local officials and strengthen the implementation of the environmental supervision system and accountability mechanism. Meanwhile, the local governments should further increase environmental protection expenditure, and enhance the supervision and utilization efficiency of environmental protection funds.