Environmental Target ResponsibilitySystem, Governance, and EconomicGrowth

Yan Chengliang*1, Zhao Fuyang1, Niu Huan2

1 School of Economics, Central University of Finance and Economics (CUFE), Beijing, China

2 School of Economics, Anhui University of Finance and Economics (AUFE), Bengbu, China

Abstract: This paper develops an economic growth model incorporating China’sEnvironmental Target Responsibility System (ETRS) to analyze its impact on both economicgrowth and social welfare. We find that the ETRS’s effect on economic growth is complex,resulting from the interplay of three key factors: its potential to improve environmentalquality, its potential dampening effect on total factor productivity (TFP), and its influenceon local government spending on environmental governance. A balanced ETRS can improveenvironmental quality, promote technological innovation, and enhance social welfare.However, excessively stringent targets and overly emphasized responsibility may lead todeclines in both economic growth and social welfare. From the perspective of balancingeconomic growth and social welfare, we find that the ETRS that maximizes economic growthis less stringent than the ETRS that maximizes social welfare. Crucially, the economicgrowth cost of shifting from a growth-maximizing to a welfare-maximizing ETRS is minimal.In other words, significant improvements in environmental quality and public well-beingcan be achieved without substantially sacrificing economic dynamism. This paper attemptsto model China’s unique environmental target assessment system within the frameworkof endogenous growth theory, offering a new perspective for understanding the dynamicrelationship between economic growth and environmental quality in China.

Keywords: Environmental target responsibility system (ETRS); environmental

JEL Classification Codes: H23, H70, O41

DOI: 10.19602/j.chinaeconomist.2025.03.01