Environmental protection fee‐to‐tax and enterprise innovation path selection: Incremental innovation or breakthrough innovation?

Abstract Based on China's unique environmental protection fee‐to‐tax policy, this article investigates the profound impact of changes in environmental regulations on enterprise innovation path selection. By employing the Difference‐in‐Differences (DID) method and a comprehensive dataset of Chinese enterprises, we find that the implementation of this policy significantly promotes incremental innovation. Further research reveals that the policy exerts its influence by increasing enterprise financing constraints. Additionally, the policy demonstrates a persistent, long‐term impact, influencing both innovation efficiency and the development of artificial intelligence–related innovation. Overall, these findings fill the research gap in understanding the relationship between environmental policies and enterprise innovation path selection.