Can environmental tax reform curb corporate environmental violations? A quasi-natural experiment based on China's “environmental fees to taxes”

Abstract

Newswise — The “environmental fees to taxes” policy (EFTP) is a major step in China's tax reform. Using the implementation of EFTP as an exogenous shock, the difference-in-differences approach is adopted to examine the impact of EFTP on the environmental violations of corporates. The results show that EFTP can effectively inhibit corporate environmental violations. Increasing the share of local tax revenue and stimulating the environmental endeavors of corporates are potential channels through which EFTP can work, and the intensity of regional tax inspection is an important situational factor for EFTP to exert a disincentive effect. Further findings show that EFTP is more effectively implemented in non-state-owned companies. In areas with a higher degree of marketization, environmental regulation, and tax rate EFTP has a much stronger implementation effect. This paper provides micro-level evidence of the environmental governance effects of environmental taxes, and provides a reference for improving environmental tax policies.