Do environmental target constraints promote corporate pollution reduction?

Abstract

In order to improve the environment quality, in 2007 the Chinese government implemented a policy document on environmental target constraints called the ‘Letter of Responsibility’. Based on this impact, we collect the environmental target constraints (ETC) data of 276 cities in China, and use the Differences-in-Differences (DID) method to evaluate the impact of local government ETC on enterprise pollution. The results show that ETC can significantly curb the pollution emission level of enterprises. This effect varies significantly between enterprises of different regions, scales, ownerships, and total factor productivities (TFPs). ETC can promote enterprise emission reduction by inducing green innovation, improving corporate tax burden and financing constraints, and promoting enterprise exit. Economic growth target constraints will weaken the inhibitory effect of ETC on corporate pollution. This paper provides important empirical evidence for deepening China’s official environmental assessment system and environmental governance.