Abstract
Unprecedented industrialization and urbanization have led to China’s poor energy efficiency. In response, the Chinese government has set goals to reduce energy consumption that may include implementing new tax policies. In this paper, we investigate the relationship between energy intensity, an indicator that measures the efficiency of energy consumption, and two sources of government revenue in China (i.e., value-added tax (VAT) and corporate income tax). As a case study, we developed a Granger co-integration model to analyze the dynamic relationship of energy intensity, VAT and corporate income tax in the non-ferrous metal industry, Jiangxi Province, China, between 1996 and 2010. Augmented Dickey-Fuller tests were used to validate the model. In our time series analyses, we found when controlling for corporate income tax, a one log unit increase of VAT resulted in a decrease of 1.17 log units of energy intensity. However, when controlling for VAT, a one log unit increase of corporate income tax resulted in an increase of 0.34 log units of energy intensity. Understanding the relationship between energy intensity and taxation in industries that consume high volumes of energy can greatly enhance China’s goal to reduce energy consumption. We believe our findings add to this on-going discussion.
Highlights
China has experienced rapid industrialization and urbanization in the last two decades and much of the progress was driven by the manufacture and exporting of consumer goods
In our time series analyses, we found when controlling for corporate income tax, a one log unit increase of value added tax (VAT) resulted in a decrease of 1.17 log units of energy intensity
When controlling for corporate income tax, energy intensity would decrease by 1.17 log units for a one log unit increase in VAT
Summary
China has experienced rapid industrialization and urbanization in the last two decades and much of the progress was driven by the manufacture and exporting of consumer goods. A direct result of this unprecedented progress is an increase in energy consumption. Between 1994 and 2010, over 70% of China’s energy consumption was attributed to secondary industries [1]. One of the largest by-products of this proliferation in energy consumption is the increase in atmospheric air pollution and the deleterious health effects associated with air emissions [2]. China is the largest emitter of CO2 in the world [3]. If the Chinese energy consumption annual rate of 8.9% continues, by 2020, China’s total energy consumption will reach 8 billion tonnages of standard coal, accounting for nearly half of the globe’s energy consumption [4]
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