Local Fiscal Pressure and Enterprise Environmental Protection Investment under COVID-19: Evidence from China

Qiongzhi Liu and Jing Ren ()
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Qiongzhi Liu: Economics and Management School, Wuhan University, Wuhan 430072, China
Jing Ren: The Centre of Finance Research, Wuhan University, Wuhan 430072, China

Sustainability, 2023, vol. 15, issue 6, 1-20

Abstract: Increasing local fiscal pressure and insufficient enterprise environmental protection investment are considerable problems in China. Based on the data of A-share-listed companies in heavily polluting industries in China from 2015 to 2021, this paper uses COVID-19 as an exogenous shock of local fiscal pressure and investigates the impact of local fiscal pressure on enterprise environmental protection investment by the continuous DID method. The study found that local fiscal pressure significantly reduces enterprise environmental protection investment and has a greater impact on non-state-owned enterprises, large enterprises, enterprises located in the “two-control-zone” cities and enterprises located in cities with low fiscal self-sufficiency rates. The mechanism of analysis shows that local governments ease fiscal pressure by “increasing revenue” and “cutting expenditure”. The former increases the non-tax burden of enterprises, while the latter reduces enterprise environmental protection subsidies, which leads to a decrease in environmental protection investment. The findings of this paper indicate that it is necessary to focus on solving the local fiscal pressure dilemma to increase green investment and achieve green development.

Keywords: fiscal pressure; environmental protection investment; COVID-19; continuous DID (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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