Local government and environmental policy: Empirical evidence on the link between spending and regulation

Subnational governments around the world often enjoy considerable autonomy to pursue policy objectives through a combination of tax, spending and regulatory instruments. In the area of environmental policies, they can levy carbon, congestion or fuel taxes, provide subsidies for green innovation, and/or set a variety of emissions standards and environmental norms. This paper reports evidence for up to 18 advanced economies over the period 1995–2020 of an association between spending and environmental regulation at the local level of administration, controlling for the policy autonomy enjoyed by the local governments. Where autonomy is low, local governments tend to substitute environmental regulation for spending, but this substitution effects dissipates as policy autonomy increases.