This paper empirically analyzes the effects of fiscal decentralization on haze pollution and its mechanism using statistical data from 285 Chinese cities from 2003 to 2016. The results show that increases in the degree of fiscal decentralization not only dramatically aggravate haze pollution in local areas but also significantly worsen the haze pollution in surrounding areas. Further mechanism analyses show that the increase in the degree of fiscal decentralization can also increase the volatility of haze pollution in local areas indicating that local governments do have the ability to control haze pollution in their local area according to their own preferences and interests. However, increases in the degree of fiscal decentralization in the local area can also reduce the volatility of haze pollution in surrounding areas at the same time, indicating that the adjustments in environmental policies in surrounding areas will significantly inhibit the control of environmental policies in the local area, thus preventing haze pollution in the local area from being effectively controlled. This means that there is a destructive environmental ‘Race to the Bottom’ competition between governments in order to compete in the game.