Green Taxes: The Productivity Effects of Tax-Based Environmental Regulations on Heavily Polluting Firms
Description
Using data from both Chinese listed firms over the period 2013 and 2019 and China’s Environmental Protection Tax (EPT) Law as a quasi-natural experiment, we find that EPT law can increase the productivity of heavily polluting firms by fostering higher R&D investment and substituting labor with capital. The positive effect is more pronounced for state-owned enterprises, large businesses, firms facing fewer financial constraints, those receiving more government subsidies, and in less competitive industries. Our results also indicate that the improved firm productivity enhances the financial performance. Overall, our study highlights the importance of tax-based environmental regulations in promoting productivity and contributing to overall economic growth and provides insights for the evolving environmental policy discourse.