Fiscal target pressure, regulatory relaxation, and environmental pollution

The industrial sector poses a significant challenge to ecological and environmental development in various countries. This study investigates the effect of the fiscal target pressure (FTP) on enterprises’ pollution emission intensity using enterprise-level data from 2003 to 2013 Chinese Industrial Firms Pollution Emissions Database (CIFPE) and revenue growth targets data in provincial and municipal government work reports. We find that FTP significantly increases enterprises’ pollution emission intensity, mainly through adjustments in emissions rather than industrial output. Mechanism analysis reveals that FTP primarily exacerbates pollution emissions through two channels: the deregulation of local environmental policies and the expansion of industrial activities. Furthermore, our paper conducts a heterogeneity analysis from the perspectives of fiscal autonomy and types of environmental regulations, revealing that the FTP in cities with high fiscal autonomy results in severe pollution emissions by enterprises. Although various environmental regulations can reduce emission intensity, only government-led regulations can mitigate the pollution effects of FTP. This study offers a systematic examination of FTP’s environmental effect, providing theoretical and policy insights for reforming fiscal systems to support emission reduction and sustainable development.