Does the cost of environmental regulation affect the development of the green economy? ——A quasi natural experiment on changing environmental protection fees to taxes in China

¹ School of Economics and Management, Fujian Agriculture and Forestry University, Fuzhou, 350002, China
² Ecological Civilization Research Center of Fujian Social Science Research Base, Fuzhou, 350002, China

^* Corresponding author. E-mail: 865620009@qq.com

Abstract

Environmental regulation is a crucial mechanism for attaining both environmental preservation and sustainable development. So, how does the changes in regulatory costs affect the development of green economy? We use Difference-in-Differences model to test the impact of environmental tax implementation on the level of green economy in 30 provinces, municipalities, and autonomous regions of China from 2011 to 2020.Our research find that the implementation of environmental protection tax effectively improve the level of green economy in the areas where the tax burden was raised, that is, the increase in the cost of environmental regulation would promote the growth of the level of green economy. Through a series of robustness tests such as outlier test, placebo test, reduced sample test, lagging independent variable, and control variable, the conclusions of this paper are still robust. Further analysis reveals that the implementation of environmental protection taxes has significantly improved the level of green innovation, industrial structure, and energy use efficiency in tax bearing areas. Heterogeneity analysis find that the impact of environmental protection tax implementation on regional green economy mainly occurs in the tax burden increase areas in the central and western regions. In places characterized by elevated levels of green credit and tax burden, the introduction of environmental protection levies exhibits a more pronounced impact on fostering green economic growth. Hence, it is recommended to further augment environmental rules, broaden the ambit of environmental tax collection, and strengthen regional green credit support in order to facilitate the advancement of the green economy towards high-quality development.