Impact of Chinese environmental protection tax law on high-pollution firms' employment growth - A quasi natural experiment

Environmental protection tax law increases high-pollution firms’ cost and leads to changing of firms’ employment structure. This study analyzes how the Chinese environmental protection tax (eco-tax) policy influences employment growth rates. This study utilizes the difference-in-difference (DID) to conduct the research. The main result shows that this policy promotes employment growth of high-pollution firms in China. The mechanism analysis utilizes the mediation effect model, indicating that the eco-tax promotes high-pollution firms’ employment growth through the mediation effects of increasing labor sectors’ contribution, improving corporation market performance, and attracting employees by higher salary. The heterogeneity analysis has three main indications. (1) The eco-tax promotes the employment growth of labor-intensive firms but not technology- and asset-intensive firms. (2) The eco-tax policy has a significant positive effect on the employment growth of high-pollution enterprises dominated by low-skill workers. (3) The eco-tax policy facilitates the employment growth of high-pollution firms that are in less economically developed areas, state-owned enterprises (SOEs), high-digitalized, and intensively devoting to green innovation, and the results vary among firms with different main labor force contributions and employee proficiencies. It demonstrates that the eco-tax policy should be diversified based on the primary labor force contributions. The results also illustrate the necessity to promote non-SOEs’ environmental protection participation, improve digitalization levels, and promote green innovation.