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

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  • Liu, Guangqiang
  • Yang, Zhiqing
  • Zhang, Fan
  • Zhang, Nan

Abstract

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.

Suggested Citation

  • Liu, Guangqiang & Yang, Zhiqing & Zhang, Fan & Zhang, Nan, 2022. "Environmental tax reform and environmental investment: A quasi-natural experiment based on China's Environmental Protection Tax Law," Energy Economics, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:eneeco:v:109:y:2022:i:c:s0140988322001724
    DOI: 10.1016/j.eneco.2022.106000
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