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Corporate Tax and Carbon Emissions in the Indian Manufacturing Sector

In: India's Public Finance and Policy Challenges in the 2020s

Author

Listed:
  • Santosh Kumar Sahu

    (Indian Institute of Technology Madras
    Indian Institute of Technology Madras)

  • K. Vignesh

    (Indian Institute of Technology Madras)

Abstract

We study the relationship between corporate taxation and carbon emissions in India. Results indicate that dirty firms pay lower profit taxes and emit more. Hence, profit taxes are distorted in favour of the dirty firms and stem from the fiscal advantage of corporate debt. This result is evident from the data as dirty firms use more tangible capital, borrow more, and enjoy higher tax shields. Minimizing heterogeneity in inter-firm profit taxes can reduce carbon emissions in a steady state; however, higher innovation, such as higher spillover from R&D, would make firms competitive in reducing carbon emissions. At the same time, this research concludes that cleaner firms tend to emit less and pay higher profit tax. Significant financial stability and sustainability through reducing carbon emissions can be achieved with additional corporate eco-tax in the Indian economy.

Suggested Citation

  • Santosh Kumar Sahu & K. Vignesh, 2025. "Corporate Tax and Carbon Emissions in the Indian Manufacturing Sector," India Studies in Business and Economics, in: K. R. Shanmugam (ed.), India's Public Finance and Policy Challenges in the 2020s, pages 217-228, Springer.
    • Handle: RePEc:spr:isbchp:978-981-96-2860-5_12
    DOI: 10.1007/978-981-96-2860-5_12
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    More about this item

    Keywords

    Corporate taxes; Carbon emissions; Manufacturing sector; India;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F10 - International Economics - - Trade - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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