Differentiated environmental taxes and high-quality economic development in China: theory and evidence.

Abstract

Environmental tax policy plays an important role in promoting economic efficiency, but it is unclear whether the taxation is well-designed and effective. The differentiated environmental tax and fee policy in China has come a long way in the past 20years, along with the aim of high-quality economic development that focuses on the harmony of environment and productivity, so it is necessary to evaluate the effectiveness of the differentiated environmental tax and fee policy. This paper constructs a pollution and environmental tax model based on the new economic geography framework to simulate the effect of environmental tax and technological innovation in the eastern and western region on pollution, output, and productivity. Using China's provincial panel data from 2005 to 2020 with difference-in-difference method, empirical evidence shows that differentiated environmental tax and fee adjustments generally boost industrial high-quality development by the industrial sulfur dioxide emission deduction and green total factor productivity improvement. When the adjustment is more differentiated between treatment and control, the effect is greater and more significant. Additionally, high environmental tax standard in high SO2 emission provinces significantly contributes to high-quality development. Progressive adjustments in 2007, 2014, and 2018 lead to heterogeneous policy effect. Technological innovation plays a mediating effect between differentiated environmental tax and high-quality economic development. The results above provide theoretical analysis and empirical study of China's differentiated environmental taxes and high-quality economic development for policy making.