How Does Environmental Tax Influence the Scale and Efficiency of Green Investment among China’s Heavily Polluting Enterprises?

Lingxiao Zhao (), Yunpeng Tang and Yan Liu
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Lingxiao Zhao: School of Public Finance and Taxation, Southwestern University of Finance and Economics, Chengdu 611130, China
Yunpeng Tang: School of Economics, Anhui University, Hefei 230601, China
Yan Liu: School of Public Finance and Taxation, Southwestern University of Finance and Economics, Chengdu 611130, China

Sustainability, 2023, vol. 15, issue 20, 1-26

Abstract: This paper investigates the impact of environmental tax on corporate green investment behavior using archival data from China’s A-share-listed companies. We took advantage of the quasi-natural experiment based on China’s environmental “fee-to-tax” reform and employed the difference-in-differences (DID) method. This study goes beyond the existing studies by integrating the scale of green investment with the financial circumstances of the firms to comprehensively assess the effectiveness of green investment. Using the refined Richardson residual econometric model, we accurately measured the green investment efficiency, expanding the policy evaluation of the environmental fee-to-tax transition beyond the investment scale to include efficiency. Our findings indicated that the environmental tax promotes green investment, especially among state-owned firms, firms with fewer financial constraints, and those operating in regions with weaker environmental governance. However, we discovered a trade-off between the growth in the green investment scale and the efficiency of such investments, suggesting a decrease in efficiency due to the tax. Further investigation revealed that corporate agency issues contributed to the heterogeneity in the impact of the environmental tax on green investment efficiency, with firms facing severe agency problems and experiencing more misuse of green investment. This implied that addressing agency issues could alleviate the distortionary effects of the environmental tax on green investment efficiency.

Keywords: environmental tax; green investment; green investment efficiency; agency problem (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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