Environmental taxes, technology innovation quality and firm performance in China—A test of effects based on the Porter hypothesis

Abstract

China’s environmental tax aims to encourage technological innovation and achieve a win–win situation between the economy and the environment. Based on the panel data of A-share listed enterprises in heavy polluting industries in China from 2011 to 2019, this paper empirically examines how environmental taxes affect the development of heavy polluting enterprises. The main results are as follows: (i) Environmental taxes increase innovation and bring economic benefits to innovative enterprises, and thus, the “strong version” of the Porter hypothesis is validated. (ii) The effect on the quality of innovation is heterogeneous across tax regions. Specifically, a high environmental tax rate is more conducive to the improvement of innovation quality, and the intermediary effect of innovation quality is significant only in high tax rate regions. Further research finds that other environmental policies, such as environmental subsidies and R&D subsidies, play an important role in improving the quality of technological innovation. Well-designed policy combinations can correct the “distortion” of innovation that results from environmental taxes. A series of recommendations are proposed to improve the overall effect of environmental tax strategies.