Abstract
In this study, we used a difference-in-difference (DID) approach to analyze the effect of environmental regulation on corporate tax avoidance behavior based on China's carbon emissions trading pilot policy of 2013. Our findings were as follows: (1) Environmental regulation has led companies to adopt further tax evasion behaviors. Furthermore, the core conclusion was confirmed after a series of robust and endogenous tests, such as parallel trends and PSM-DID (propensity score matching-difference-in-difference). (2) Environmental regulations increase tax avoidance activities by reducing corporate cash flows. (3) The influence of environmental regulation on firm tax evasion is highly pronounced among non-state-owned enterprises, big-scale enterprises, and enterprises with a high degree of industry competition.
Highlights
Atmospheric pollution, similar to abnormal climate, melting glaciers, haze worsens, and frequent disasters, has become an important concern worldwide
The core conclusion was confirmed after a series of robust and endogenous tests, such as parallel trends and PSM-DID. (2) Environmental regulations increase tax avoidance activities by reducing corporate cash flows
We found that (1) environmental regulation has led companies to adopt more tax evasion behaviors
Summary
Atmospheric pollution, similar to abnormal climate, melting glaciers, haze worsens, and frequent disasters, has become an important concern worldwide. The CET pilot policy (strong environmental regulation) increases the total cost, production costs, and inventory costs of corporations [16], which decreases the available internal cash. Taking the 2013 China carbon emissions trading pilot policy as the background, in this study we utilized the DID approach to analyze the effect of environmental regulations on firm tax avoidance. (2) Environmental regulations increase tax avoidance activities by reducing corporate cash flows. Based on the 2013 CET pilot policy as a quasi-natural experiment, our research accurately identifies the causal effect of environmental regulation on firm tax avoidance. Through quasi-natural experiments, we use the DID method to accurately estimate the causal effect of environmental regulation on corporate tax avoidance. The remaining paper is organized as follows: Section 2 provides the institutional background, Section 3 introduces the research design and empirical sampling, Section 4 discusses the basic empirical results, and Section 5 concludes and discusses policy implications
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