The Environmental Protection Tax and Corporate Green Innovation: Evidence from China

The environmental protection tax (EPT) is a vital means for China to promote sustainable development. However, its impact on corporate green innovation is controversial. Utilizing the data from Chinese A-share industrial listed companies from 2013 to 2022 and the difference-in-differences (DID) model, this study examines the impact of the EPT on corporate green innovation. The results indicate that the EPT can promote corporate green innovation, which is robust across various tests. Furthermore, the EPT fosters corporate green innovation mainly by stimulating companies to increase research and development (R&D) investment. The heterogeneity analysis demonstrates that the EPT promotes green innovation only in large-scale companies, non-state-owned companies, and eastern companies. The further analysis suggests that the green innovation brought by the EPT could improve corporate economic performance. Moreover, the EPT promotes both corporate substantive innovation and strategic innovation. That is, the EPT could enhance the quality of green innovation whilst also inducing strategic behavior. This study could provide profound insights to facilitate green transitions in emerging market countries like China.