The environmental benefit of tax enforcement: evidence from China

ABSTRACT

This study explores how tax enforcement contributes to the improvement of air quality. We leverage the implementation of the Golden Tax Project III in China as a quasi-natural experiment and employ a difference-in-differences framework to establish causality. The findings indicate that the average SO₂ concentration in pilot cities decreased by 2.8%, and the average PM_2.5 concentration decreased by 3.2%. Further analysis reveals that curbing the expansion of tax-evading firms and ensuring the government’s provision of environmental public goods are mechanisms through which stricter tax enforcement reduces air pollution. These effects are more prominent in cities characterized by a higher proportion of heavy-polluting industries, greater fiscal pressure, and a stronger preference for environmental governance.

KEYWORDS:

• Tax enforcement
• information technology adoption
• air pollution

JEL CLASSIFICATION:

• Q51
• Q53
• H26

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. For example, in low to middle-income countries, tax revenues account for only 10% to 20% of GDP, while in high-income countries, this ratio is approximately 40%.

Data source: https://blogs.worldbank.org/impactevaluations/increasing-tax-revenue-developing-countries.

2. For further information, see http://www.gov.cn/xinwen/2016–12/26/content_5153148.htm.

3. Data source: https://www.mee.gov.cn/hjzl/sthjzk/sthjtjnb/

4. The pollution-intensive industries refer to the 11 heavily-polluting sectors explicitly defined in the ‘First National Pollution Source Census Plan’ released by the State Council in 2006. These industries include: Paper and Paper Product Manufacturing (22), Food and Beverage Processing Industry (13), Chemical Raw Materials and Chemical Product Manufacturing (26), Textile Industry (17), Ferrous Metal Smelting and Rolling Processing Industry (32), Food Manufacturing (14), Electricity and Heat Production and Supply (44), Leather, Fur, Feather, and Its Product Industry (19), Petroleum Processing, Coking, and Nuclear Fuel Processing Industry (25), Non-Metallic Mineral Product Manufacturing (31), and Non-Ferrous Metal Smelting and Rolling Processing Industry (33).

Additional information

Funding

Ming-ang Zhang acknowledges financial support from China’s National Natural Science Foundation [Project ID: 72203247]. Sihan Zhang acknowledges financial support from R&D Program of Beijing Municipal Education Commission [Project ID: SM202311232001].