How does China’s resource tax law affect resource-based firms’ total factor productivity?

• The effect of RTL on firm's TFP is a worthwhile but not yet explored question. • The RTL promotes resource-based firm's TFP (this result is robust). • The RTL has stronger effect on firms with higher initial TFP levels. • Evidence appears to confirm the existence of the Porter hypothesis in China. • Heterogeneity analyses show the RTL has various impacts on different types of firms. Using panel data of A-shares during 2017-2022 and the difference-in-differences approach, this study investigates the effect of China's resource tax law (RTL) on firms’ total factor productivity (TFP). The benchmark and robustness tests demonstrate a significant promotional impact of RTL on resource-based firm TFP. Besides, quantile analysis reveals that the RTL positively affects firms with higher initial TFP levels more than those with lower levels. The RTL's effect on firms’ TFP emerges (becomes stronger) only if research and development investments (government subsidies) reach a certain value. Heterogeneity analyses show that the RTL has various impacts on different types of firms.