The Spillover Effects of Environmental Regulations: A Perspective of Chinese Unregulated Firms' Tax Burden

Yong Geng, Wei Liu, Hanshu Chen and Xinyu Zou

China & World Economy, 2023, vol. 31, issue 2, 84-111

Abstract: Previous studies focus on the direct impacts of environmental regulations while paying less attention to spillover effects. Taking the Eleventh Five‐year Plan in China as a quasi‐natural experiment, our results show that environmental regulations significantly increase the tax burden of unregulated firms. Environmental regulations generate spillover effects on firms that should not be subjected to regulatory policies. Further channel analysis shows that the fiscal pressure of local governments caused by environmental regulations is a major channel for the increase in the tax burden of unregulated firms. Finally, according to the heterogeneity results, the spillover effects are more pronounced in small firms, non‐state‐owned enterprises, and provinces with stricter enforcement. Our findings emphasize the additional costs of environmental policies, and the government should consider these costs when formulating policies.

Date: 2023
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