Tax incentives and environmental protection: evidence from China’s taxpayer-level data

Results: We find that: (1) The two tax incentives are generally not popular. SOEs are the main beneficiaries, while regional characteristics have no impact on taxpayers’ attitude to ITC or TID. The mechanism behind may be that the incentives hurt interests of firms and local governments. (2) Their effects on taxpayers’ activities including capital, employment, and production are not remarkable, while growth of coal consumption significantly speeds up. These findings are robust to multiple specifications of using different empirical strategies, samples, and variables. (3) However, the results indicate that the tax incentives do serve the purpose of protecting environment by restraining coal consumption in some specific group of firms who are affiliated to the central government. This finding confirms a simple model established in the paper that emphasizes the importance of the government’ executive power on tax policies and relates to the literature finding that local support can remarkably boost the efficiency of tax incentives for environmental protection.