Tax-reducing incentive and corporate green performance: What we learn from China

Abstract

Using a large sample of Chinese firms for the period 2008–2019, we provide strong and robust evidence that tax-reducing incentives are positively associated with corporate environmental performance. Previous research has found that tax reduction incentives can promote green performance by improving the total factor productivity of firms and provide long-term benefits. This facilitation is highly effective among non-state-controlled renewable energy companies. After grouping the tax reduction incentives according to the 25th quantile, it was found that with an increase in the tax reduction incentive intensity among different groups, the green environmental protection performance of enterprises presents an inverted V-shaped characteristic wherein promotion is followed by inhibition. Furthermore, we show that the positive relationship between tax incentives and green performance weakens when firms face uncertainty in their external environment. The conclusions of this paper can help government decision-makers identify the source of green performance improvement, optimize the design of fiscal policy, and then formulate an effective renewable energy development strategy to accelerate the green transformation of Chinese enterprises.