| Abstract | Based on the models of K-K(2002), O-W(2009) and E-R(2012), we construct a nested model including two type-layers of central government and local government to analyze the relationship between regional competition, capital flow and environment pollution. Relying on the Chinese panel data of 271 cities during the period 2003-2010, we do empirical tests finding that with a unit increased capital, discharge of sewage, the emission of sulfur dioxide and smoke nuisance will be increased 33.9159 units, 22.5493 units and 15.4032 units respectively. And a unit increased of local real tax rate, discharge of sewage, the emission of sulfur dioxide and smoke nuisance will be decreased 942.378 units, 1149.82 units and 425.066 units respectively. Competitions for economic growth induce competitions for pollution, and investment driven economy induce widespread pollution. To obtain a better and clean environment, we need to change economic growth pattern, reform the system of tax-sharing and environmental regulations, and establish a more scientific political incentive system and public participation mechanism in environmental protection. |