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How does environmental regulation affect corporate tax burdens? Evidence from China's environmental courts

Jianjun Li, Zhouyi Wu and Lingbing Feng

Economic Modelling, 2024, vol. 130, issue C

Abstract: This research examines how environmental regulation impacts corporate tax burdens. Although the literature argues that environmental policies exacerbate firms' tax avoidance, we offer a new insight from the perspective of government behaviour. Using the difference-in-differences approach and data on Chinese listed manufacturing firms from 2003 to 2019, we find that the establishment of environmental courts in China results in a 1.70 percent increase in corporate effective tax rates. The effect is significant only for private firms and is more pronounced in cities with stringent environmental regulations and fiscal stress. Tougher tax enforcement and the reduction of preferential tax policies are two potential channels. Given that environmental regulation reduces the tax base, local governments implement tougher tax enforcement and reduce preferential tax policies to maintain necessary tax revenues. Our study highlights the role of government in determining corporate tax burdens and evaluates the hidden tax costs of environmental regulation.

Keywords: Environmental regulation; Environmental courts; Tax enforcement; Corporate tax burdens; China (search for similar items in EconPapers)
JEL-codes: G31 H25 K42 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323003784

DOI: 10.1016/j.econmod.2023.106566

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