Environmental taxation and human capital accumulation: firm-level evidence from China's environmental protection tax reform

Purpose This study aims to investigate the spillover effects of environmental taxation on human capital accumulation. Specifically, we test whether China's environmental protection tax reform, beyond its environmental goals, also promotes the enhancement of corporate human capital, and we uncover the underlying mechanisms. Design/methodology/approach This study utilizes China's Environmental Protection Tax Law (EPTL, enacted in 2018) as a quasi-natural experiment. The reform involves different tax rate adjustments across provinces and primarily affects polluting firms. Therefore, we employ a difference-in-difference-in-differences (DDD) method based on data from listed firms. This approach helps us to accurately capture the causal effect of the environmental tax on corporate human capital. Findings Our analysis reveals that the reform leads to a 10.09% increase in firms' human capital accumulation. A series of robustness tests, including parallel trend and placebo tests, support the reliability of the conclusions. The reform shows no negative impact on total employment or unskilled labor employment. Reform effects vary by regional institutional characteristics and generate positive economic externalities beyond environmental protection. These findings show that the government should design different tax rates and strengthen skill training in environmental areas. This helps environmental taxes reach environmental goals while making the most of their positive effects on improving human capital. Originality/value This study fills a gap by analyzing how environmental tax policies affect human capital accumulation beyond traditional income and payroll taxes. It expands the capital-skill complementarity hypothesis by demonstrating how environmental policies drive skill-biased technological change, which further influences the demand for skilled workers.