Environmental protection tax and green innovation

Abstract

How environmental taxes affect green innovation in businesses is closely related to enterprise sustainable development and green economic development. This study uses the data of non-financial listed companies from 2010 to 2020 in China, and adopts the difference-in-difference method to examine the effect of the environmental protection tax (EPT) on corporate green innovation in China. Results show that EPT reform has a significantly negative effect on corporate green innovation, and the robustness test supports this result. EPT has a larger inhibitory effect on non-state-owned enterprises' green innovation than state-owned enterprises. This inhibiting effect is particularly prominent in companies situated in northern and low-marketization regions. Further analysis shows that EPT affects enterprises' green innovation by reducing the cash flow and financing of enterprises. This study provides an empirical basis for the implementation of the EPT policy.