Does Environmental Protection Tax Promote Urban Green Total Factor Productivity? Evidence from China

Green total factor productivity (GTFP) serves as an important measure of whether high-quality economic growth is achieved in a manner consistent with environmental sustainability. The environmental protection tax (EPT) promotes GTFP by incentivizing firms to reduce emissions and upgrade technology, thereby fostering synergy between economic development and environmental governance. Using an unbalanced panel of 280 cities from 2013 to 2022, we treat the differential EPT shock generated by provincial tax-rate increases after the implementation of the Environmental Protection Tax Law. The results can be summarized as follows: (1) EPT significantly increases urban GTFP, indicating that the policy facilitates coordinated economic–environmental development; (2) technological innovation and government environmental governance capacity both act as channels through which EPT indirectly raises GTFP; (3) the promotive effect of EPT is stronger under higher fiscal pressure; and (4) the positive impact is more evident in regions with medium-to-low tax rates and in non-resource-based cities. Overall, this study enriches the theoretical and empirical evidence on the effects of EPT on GTFP and offers useful implications for refining EPT design and advancing regional green development.