The Green-Innovation-Inducing Effect of a Unit Progressive Carbon Tax

Xiao Yu, Yingdong Xu, Meng Sun and Yanzhe Zhang
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Xiao Yu: Northeast Asian Research Center, Jilin University, Changchun 130021, China
Yingdong Xu: Northeast Asian Studies College, Jilin University, Changchun 130012, China
Meng Sun: Northeast Asian Research Center, Jilin University, Changchun 130021, China
Yanzhe Zhang: Northeast Asian Research Center, Jilin University, Changchun 130021, China

Sustainability, 2021, vol. 13, issue 21, 1-18

Abstract: The major global economies are facing increasing pressure to reduce their carbon emissions. Introducing environmental policy instruments to stimulate green innovation is key to mitigating global warming. We propose a carbon tax design with a typical green innovation orientation that links carbon taxes with the low-carbon technology (LCT) of enterprises and imposes a progressive tax on heterogeneous enterprises with LCT stock to encourage green innovation. This study used a dynamic evolution game model based on the Stackelberg model of heterogeneous enterprises with LCT stock to analyze the green-innovation-inducing effect of unit progressive carbon taxes. A unit progressive carbon tax could encourage enterprises to participate in green innovation, regardless of their initial green innovation willingness. The progressive tax rate was more effective than a fixed rate for stimulating green innovation by all enterprises. There was a marginal diminishing effect of increases in the tax rate. An increase in the innovation cost coefficient of enterprises reduced the green-innovation-inducing effect of the unit progressive carbon tax. Increasing the tax rate was effective only under normal circumstances. A decline in the carbon reduction in enterprises also reduced the green-innovation-inducing effect of the unit progressive carbon tax. Furthermore, increasing the tax rate when the carbon reduction amount was extremely low caused enterprises to abandon green innovation.

Keywords: carbon tax; green-innovation-inducing effect; progressive tax rate (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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