The greening of the tax system and corporate carbon emission reduction: Empirical evidence from the implementation of environmental protection tax law in China

Promoting the greening of the tax system plays a vital role in advancing the green and low-carbon transformation of enterprises. Using data from A-share listed companies in Shanghai and Shenzhen from 2011 to 2021, this study exploits the implementation of the Environmental Protection Tax Law in 2018 as a quasi-natural experiment and employs a difference-in-differences (DID) approach to examine the impact of green tax reform on the carbon emissions of heavily polluting firms. The findings indicate that the policy significantly reduces carbon emissions, with green technological innovation, environmental investment, and corporate mergers and acquisitions identified as key transmission mechanisms. Heterogeneity analysis reveals that the emission-reducing effect is more pronounced among firms located in regions with lower environmental awareness, firms facing high financing constraints, and non-technology-oriented firms. This study offers empirical evidence to support the refinement of green tax policies and the promotion of enterprise-level low-carbon transitions.