Environmental Protection Tax Law Research Articles

Additional social welfare of environmental regulation: The effect of environmental taxes on income inequality

This study utilizes the environmental tax reform in China as a quasi-natural experiment to investigate the effect of environmental taxes on income inequality. In January 2018, the Environmental Protection Tax Law (EPTL) came into effect in China, provinces began to collect environmental taxes in accordance with the law. We find that the reform contributes to lower within-firm wage inequality. The reform leads to declines in executive compensation and increases in worker wages. We further find that tax enforcement, environmental regulations, fiscal stress and tax competition vary the relationship between the reform and wage inequality. Heterogeneity analyses show that the effect is greater in non-state-owned firms, small firms, and firms with higher board shareholdings. Extensive robustness tests corroborate our inferences. This paper verifies the effectiveness of environmental regulation in enhancing social welfare, and is beneficial for assessing the welfare effects of environmental regulation more accurately. The findings can also help the government reduce obstacles in the implementation of environmental taxes, and further enhance the effectiveness of the EPTL.

Environmental taxes and corporate cash holdings: Evidence from China

As an economic incentive–based environmental regulation tool, environmental taxes can positively affect enterprise R&D innovation. R&D activities require substantial funds, and ensuring the stability of funds has become an important issue for enterprises, potentially affecting their precautionary motive for corporate cash holdings. This paper takes the implementation of China's Environmental Protection Tax Law as a quasi-natural experiment, takes Chinese listed companies from 2015 to 2020 as samples, and uses the difference in difference method to study the relationship between environmental tax and corporate cash holdings. The results show that the change from an environmental protection fee to a tax increased enterprises' capital demands, significantly promoting cash holding of enterprises. Meanwhile, the results of the mechanism test show that R&D investment is an important motivation for enterprises' cash holdings as it partially mediates the relationship between the environmental tax and cash holdings. Finally, we also find that for enterprises with high financing constraints, non-state-owned enterprises, and firms in areas with low marketization, the impact of the environmental protection fee reform on corporate cash holdings is more pronounced.

The Impact of Environmental Tax Reform on Total Factor Productivity of Heavy-Polluting Firms Based on a Dual Perspective of Technological Innovation and Capital Allocation

As an essential reform of China’s environmental regulatory policy, the environmental protection tax reform achieves a smooth transition from the emission fee system to the environmental protection tax system according to the principle of tax burden leveling. With the quasi-natural experiment of the introduction of the Environmental Protection Tax Law, this paper examines the effect of environmental protection tax reform on total factor productivity of heavily polluting firms using a difference-in-difference approach based on empirical evidence of Chinese listed companies from 2015 to 2020. It is found that environmental tax reform can significantly increase the level of total factor productivity of heavily polluting firms, and the results remain robust to robustness tests using the OP method, the GMM method to re-measure the total factor productivity of heavily polluting enterprises and the use of different industry classification criteria, with the mechanism of action mainly coming from the technological innovation effect and capital allocation optimization. In addition, the effect of environmental tax reform on total factor productivity of heavily polluting firms is heterogeneous across regions and industries, with the total factor productivity of firms in heavily polluting industries in the eastern region being least affected by environmental tax policies and state-owned enterprises with heavy property rights structures being most affected by environmental tax reform.

Can environmental tax reform promote carbon abatement of resource-based cities? Evidence from a quasi-natural experiment in China.

China is entering a new period characterized by reaching peak and carbon neutralization, and environmental taxes are increasingly crucial for breaking the "carbon curse" of resource-based cities. Accordingly, using the implementation of China's Environmental Protection Tax Law (EPT Law) as a quasi-natural experiment, this study utilizes the DID model to assess this environmental tax reform's effect in terms of reducing carbon emissions. The research results are as follows: (1) The environmental tax reform (ETR) reduced the intensity of carbon emissions; it additionally promoted reducing total carbon emissions from resource-based cities. (2) The carbon abatement effect can also be achieved by upgrading industrial structures and improving innovation in the area of green technology. (3) The ETR has impacted carbon abatement in resource-based cities more significantly in China's eastern region than in the central or western regions. In contrast, it had less effect on resource-based cities in the regenerative stage than on cities in other stages. (4) The spatial spillover effect of the ETR was significantly positive, aggravating the level of carbon emissions in neighboring cities. Thus, the "pollution haven hypothesis" was tested. Overall, this study deepens the knowledge of ETR and carbon emissions and provides theoretical support and policy suggestions for supporting resource-based cities in a green transformation.

Effect of environmental tax reform on corporate green technology innovation

China has recently taken several measures to counter the environmental pollution caused by the crude model of past economic development. Among them, taxation has proved especially efficient. We take the Environmental Protection Tax Law, implemented on 1 January 2018, as a quasi-natural experiment to study the effect of environmental protection tax reform on corporate green technology innovation. We analyze data on Shanghai and Shenzhen A-share listed companies for 2013–2020. We find that raising the tax levy significantly promotes green innovation among enterprises. The promotion effect is more significant in state-owned enterprises, heavily polluting enterprises, and the eastern region. The findings of the full sample and subsample still hold after replacing the explanatory variables for stability testing. The effects vary significantly based on property rights, geography, and level of industry pollution. Nevertheless, environmental tax reform is an effective initiative toward environmental protection, even if the complexity of China’s economic environment reveals some variation in the effects of this policy reform. We make suggestions to address these differences for future studies.

Increasing short-term lending for long-term investment under environmental pressure: evidence from China's energy-intensive firms.

To improve environmental quality and reduce pollutant emissions, China enacted the Environmental Protection Tax Law (EPTL) in 2018, leading to increase environmental pressure. Based on the data of energy-intensive firms listed in China's A-share market, this study examines firms' investment and financing behavior, increasing the short-term loans for long-term investment. Using the Difference-In-Differences (DID) method, empirical evidence supports the idea that environmental pressure causes energy-intensive firms to increase short-term lending for long-term investment (SLLI). Specifically, environmental pressure leads firms to increase long-term investment activities, such as fixed assets, environmental protection, and innovation. In contrast, long-term loans decrease, forcing firms to use short-term loans for long-term investments. Affected by rising environmental pressure, firms with low financing constraints are more likely to use short-term loans instead of long-term loans to support long-term investment activities, while firms with high financing constraints cannot obtain short-term loans. Our findings provide critical insights for promoting coordination between financial and environmental policies.

Environmental Protection Tax Law on the synergy of pollution reduction and carbon reduction in China: Evidence from a panel data of 107 cities

Many of air pollutants and carbon dioxide (CO 2 ) have common emission sources, determining that they should be controlled collaboratively rather than treated separately. To protect the environment, China implemented the Environmental Protection Tax (EPT) Law on January 1st, 2018. Yet CO 2 is not included in the tax category, whether the EPT Law can achieve coordinated control of air pollutants and CO 2 emissions remains unclear. This paper examines the role of the EPT Law in the synergy of pollution reduction (PR) and carbon reduction (CR) by employing the Difference-In-Differences (DID) model on China's 107 cities from 2015 to 2019. We find that the policy, although not including CO 2 as one taxable item, has significantly increased the synergistic reduction degree of “sulfur dioxide (SO 2 )-CO 2 ” by 41%, and the synergistic reduction degree of “particulate matter (PM)-CO 2 ” by 39%. Moreover, strengthening environmental protection supervision, optimizing energy structure and improving green technology innovation are main transmission mechanisms through which EPT Law affects the synergy degree of PR and CR. Further, the heterogeneity of policy effects caused by different magnitudes of tax rate increase is unveiled, showing that the policy effects on the synergy of PR and CR are most significant in regions that raised the SO 2 tax rate beyond 2.4 Yuan and raised the PM tax rate between 2.4 Yuan and 6 Yuan. This paper suggests that the EPT Law serves a critical function in enhancing the synergy of PR and CR, and thus the synergistic effect of air pollutants reduction on carbon reduction should be considered when formulating possible carbon tax rate in the future.

The influence of environmental protection tax law on total factor productivity: Evidence from listed firms in China

The Environmental Protection Tax Law (EPTL) is one of the major environmental policies announced by Chinese authorities in recent years. It aims to push corporate firms to boost their production efficiency, reduce pollutant emissions, and promote sustainable growth nationwide. Nonetheless, its impact on firms' total factor productivity (TFP) has yet to be studied. Therefore, we adopt a difference-in-differences approach to explore whether this policy improves firms' TFP, based on a sample of all A-shares from 2015 to 2020. We divide sample firms into heavy polluters and others and demonstrate that the EPTL promotes heavy polluters' TFP. This empirical result holds after various robustness tests. We also conduct a series of additional tests to explore how this policy affect firms' TFP under different situations: a) the dynamic effect analysis shows that the EPTL's TFP-promoting effect will increase over time; b) the quantile analysis reveals that the EPTL has a stronger promoting effect on firms with lower rather than higher TFP levels; c) the threshold effect analysis shows that the TFP-promoting effect of the EPTL increases exponentially after threshold values for research and development investment, government subsidies, and firm profitability are exceeded; and d) the difference-in-differences-in-differences approaches reveal that the EPTL has a worse impact on firms with political connections and those located in provinces where EPTL tax rates increased relative to those in preceding legislation. These findings suggest that the Chinese government should adhere to implementing this policy in the long term and encourage firms to increase their research and development investments. In addition, it should provide special aid to mitigate the EPTL's negative impact on politically connected firms and firms located in province where tax rates increased.

The effects of environmental tax reform on urban air pollution: A quasi-natural experiment based on the Environmental Protection Tax Law.

Air pollution significantly impacts sustainable development and public health. Taking the implementation of China's Environmental Protection Tax Law in China as a quasi-natural experiment, this paper employs the difference-in-differences (DID) and spatial DID models to evaluate the effects of environmental tax reform on urban air pollution. The findings are as follows. (1) Environmental tax reform can significantly reduce urban air pollution, and a series of robustness tests have also been conducted to provide further evidence. (2) Green technology innovation and industrial structure upgrading from a vital transmission mechanism for environmental tax reform to improve air quality. (3) Environmental tax reform significantly inhibits urban air pollution in cities located north of the Qinling-Huaihe line and big cities. (4) Moreover, environmental tax reform not only promotes the improvement of local air quality but also has a significant negative spatial spillover effect, reducing air pollution in neighboring cities. The research conclusions provide theoretical support and policy suggestions for promoting sustainable economic development, rationally optimizing environmental protection tax policies and improving urban air quality.

RETRACTED: Carbon pricing and environmental response: A way forward for China’s carbon and energy market

Addressing the conflict between fossil fuel exploitation, usage, and greenhouse gas emissions is a top priority for China’s low-carbon socioeconomic development. Scalable Axisymmetric Matrix “a computerized general equilibrium model” is used to assess the impact of carbon tax policies on energy usage, carbon pollution, and macroeconomic drivers at reduction levels of 10%, 20%, and 30% of emissions. In the meantime, we examine the impact of various carbon tax recycling schemes in line with the tax neutrality concept. Although the carbon tax successfully reduces carbon emissions, we conclude that it will have a detrimental effect on the economy and social well-being. To cope with China’s increasing pollution emissions and ecological imbalances, the Chinese government promulgated the environmental protection tax law of the people’s Republic of China, which was officially implemented in 2018. Although carbon dioxide is not included in the Taxable Pollutants and Single Quantity Table attached to this law, China has almost reached a consensus on taxing carbon emissions. In 2021, the State Council of China issued the opinions on completely, accurately, and comprehensively implementing the new development concept and doing a good job in carbon peak and carbon neutralization, which made a comprehensive deployment to achieve the “double carbon” goal and improved the carbon tax policy and legal system, which is an essential part of it. Therefore, based on fiscal neutrality, an effective carbon tax recycling scheme can mitigate the adverse effects of its adoption. However, due to the current development in China’s energy-generating and transportation sectors, even minor steps can have huge effects on emissions with marginal economic implications.

Can environmental regulations improve the investment efficiency of heavily polluting firms? A quasi-natural experiment in China

ABSTRACT In light of China’s implementation of the Environmental Protection Tax Law (EPT Law) on 1 January 2018, this paper empirically investigates the influence of environmental regulations on the investment behaviour of heavily polluting firms using a difference-in-differences (DID) model. The EPT Law is found to improve the investment efficiency of heavily polluting firms by restraining overinvestment, an effect that applies mainly to private firms, particularly those with no political affiliations. This paper enriches the existing research on the economic consequences of the EPT Law by integrating environmental regulations, property rights, political affiliation and investment efficiency into a unified framework. This study’s findings are instructive for understanding the economic effects of environmental regulations.

Research on the Green Technology Innovation Cultivation Path of Manufacturing Enterprises Under the Regulation of Environmental Protection Tax Law in China

In the context of China’s path to industrialization advancement, environmental problems are becoming increasingly serious. Therefore, the cultivation of green technology innovation has become an urgent task during the current industrialization development. According to the “Porter hypothesis,” environmental regulation is an important driving force for green technology innovation. Environmental tax is a typical environmental regulation, although it was implemented late in China. Green technology innovation is one of the long-term effects of environmental tax collection. Using multiple regression analysis and taking Chinese manufacturing enterprises as samples, this study constructs and tests a model of environmental tax promotion and its effect on green technology innovation, revealing the micro-mechanism of environmental tax incentives and also finding that sufficient environmental tax incentives are lacking. The strategy of green technology innovation cultivation for manufacturing enterprises in China under the current environmental tax regulation is provided in this article in order to provide a current theoretical reference point for the development of China’s ecological economy.

Environmental “Fee-to-Tax” and Heavy Pollution Enterprises to De-Capacity

Will environmental “fee-to-tax”, which strengthens the rigidity of levies and increases the environmental costs of heavy pollution enterprises, force heavy pollution enterprises to de-capacity. This paper examines the impact and heterogeneity of the environmental “fee-to-tax” on heavy pollution enterprises’ de-capacity by taking the official implementation of the Environmental Protection Tax Law of the People’s Republic of China in 2018 as the institutional impact and the listed industrial enterprises in Shanghai and Shenzhen A-shares from 2015 to 2019 as the sample. The study found that environmental “fee-to-tax” pushed heavy pollution enterprises to de-capacity. After parallel trend tests, placebo tests, eliminate policy interference, propensity score matching, and replacement variables, the findings of this paper are robust. Further analysis shows that the effect of environmental “fee-to-tax” on heavy pollution enterprises’ de-capacity is more significant in state-owned enterprises, high financing constraints enterprises, and areas with higher tax collection and management; this effect is still effective and more significant in areas with low economic development because all environmental tax revenues are included in local finance. This paper follows up and tests the implementation effect of environmental regulations in China and provides a valuable reference for the government to promote the task of de-capacity and green transformation and upgrading of industrial structure through actively playing the role of environmental protection.

Environmental tax reform and environmental investment: A quasi-natural experiment based on China's Environmental Protection Tax Law

Using a 2015–2019 sample of Shanghai and Shenzhen A-share listed companies and the difference-in-differences method, this paper analyzes the effect of the implementation of China's environmental tax in 2018 on firms' environmental investments. The results show a significant increase in firms' environmental investments after the implementation of the tax. Further analyses examine variations in the effect according to ownership type, regional economic development level, and media attention. The positive effect is more significant for state-owned companies and companies subject to high media attention, but there is no obvious difference between companies in regions with different levels of economic development. Additional analysis reveals that government subsidies negatively affect firms' environmental investments, but the environmental tax reduces such subsidies and thus their inhibitory effect, increasing firms' environmental investments. Additionally, the results show that the environmental tax promotes firms' performance by increasing their environmental investments. This paper provides theoretical support and empirical evidence for the implementation and improvement of the environmental tax policy.

Environmental Protection Tax and Corporate Capital Structure

ABSTRACT We utilize the environmental protection tax law as an exogenous shock to the tax of environmental protection to investigate the relationship between environmental issues and corporate capital structure. Our findings show that, following the adoption of this tax law, polluting firms are more likely to reduce their leverage. This phenomenon is more pronounced in polluting firms with excess cash, financially constrained firms, or financially distressed firms. Overall, we find that the environmental protection tax reduces corporate leverage by increasing corporate outlays and crowding out debt interest expenses.

How do the China Pollution Discharge Fee Policy and the Environmental Protection Tax Law affect firm performance during the transitional period?

The Chinese authorities revised its Pollution Discharge Fee Policy and officially implemented the Environmental Protection Tax Law on January 1, 2018. Considering the importance of such a reform, we utilise the ordinary least squares and probit regression models to explore the effects of these policies on firm performance during the transitional period of 2016 to 2019. We find that fee rates are negatively related to firm financial performance, i.e. profitability and development capability, and positively associated with firm environmental performance, i.e. corporation social responsibility. We applied the IV 2SLS regression model to control for firms' research and development investment, and the empirical results remain the same. Regarding subsample tests, these policies have stronger impacts on firm performance among heavy polluters and non-state-owned enterprises than those of environmental friendly firms and state-owned enterprises. The empirical results hold after we control for various potential endogeneity issues. The findings of this article may assist the authorities to adjust the tax law, so as to protect the environment and relieve the negative impact on firm performance simultaneously.

Spatial Pattern and Spillover of Abatement Effect of Chinese Environmental Protection Tax Law on PM2.5 Pollution.

Particulate matter () pollution is a threat to public health, and environmental taxation is an important regulatory mode controlling pollution. In 2018, China implemented the Environmental Protection Tax Law (EPTL) targeting pollution. Based on in-situ monitoring and emission inventory data, a Bayesian hierarchical spatiotemporal model combining a two-period trends difference method was employed to measure the abatement effects of China’s EPTL on pollution (AEEPTLPM). On this basis, a spatial spillover index (SSI) of the AEEPTLPM is proposed. Applying this index, we calculated the spatial spillover characteristics of the AEEPTLPM in mainland China at a provincial scale in 2018–2019. The results show that the EPTL has had significant abatement effects on both in-situ-monitored concentrations and local total industrial emissions. Additionally, the two types of AEEPTLPM display distinct spatial heterogeneity. A correlation between the AEEPTLPM and the degree of pollution was observed; areas with serious pollution have higher AEEPTLPM levels, and vice versa. The SSI indicates that the AEEPTLPM exhibits significant spatial spillover characteristics, and spatial heterogeneity is also present.

Does environmental regulations promote the green transformation of high polluters?

ABSTRACT In light of the implementation of the Environmental Protection Tax Law (the EPT Law) in China on 1 January 2018, this paper employs the difference-in-difference model (DID) to empirically investigates how the environmental regulations affects the green transformation of highly polluting firms. The results indicate that the EPT Law has significantly aided in the green transformation of highly polluting firms, with the increasing pressure of environmental legality acting as a partial mediating effect. This paper adds to the research on the economic effects of the environmental regulations and provides new evidence to support the incentive perspective on environmental regulations.

Analysis of the Role of Promoting Sustainable Green Growth through Government Agencies in a Legal Context.

The rapid development of the global economy has also caused the deterioration of the natural environment. The traditional economic growth method can no longer meet the development requirements of the times for the environment. The realization of sustainable and green development of human society has become the consensus of the whole society. To improve the degree of the greening of the economy, it is necessary to coordinate the management of various departments and to integrate the concept of environment and resources into economic growth. It is an important way for government departments to formulate corresponding sustainable green growth policies by relying on laws to achieve the strategic goals of sustainable green growth. In order to explore the role of government agencies in sustainable green growth through the enactment of relevant laws, this article takes China as the study of the environment. From the perspective of environmental protection tax law, through the establishment of the relationship model between ET and economic variables and ET and environmental indicators, using vector autoregression and system dynamics simulation analysis methods, the effect of ET on the environment and economy is studied. In the analysis of the impact on the environment, the impact of the auxiliary policy of ET on sustainable green growth is discussed. The experimental results show that the impact of environmental tax (ET) on GDP is more obvious. The simulation results show that when the proportion of technology investment is 35%, the promotion effect of sustainable green growth is the best. That is to say, the formulation of relevant laws and policies by government agencies has a certain role in promoting sustainable green growth.

The effects of the environmental protection tax law on heavily polluting firms in China.

In 2016, China implemented an environmental protection tax (EPTL2016) to promote the transformation and upgrading of heavily polluting industries through tax leverage. Using panel data of China’s listed companies, this study assesses the treatment effects of the EPTL2016 on the transformation and upgrading of heavily polluting firms by incorporating the intermediary role of the financial market. The empirical findings show that the EPTL2016 significantly reduced the innovation investment and productivity of heavily polluting firms but had no significant effect on fixed-asset investment. Additionally, EPTL2016 reduced the supply of bank loans to heavily polluting firms and increased the value of growth options for private enterprises and the efficiency of the supply of long-term loans to heavily polluting firms. Although the environmental policy of EPTL2016 benefits the transformation and upgrading of heavily polluting industries in many aspects, it generally hinders the industrial upgrading because of the reduction of bank loans.