This paper aims to explore the effect of green taxation on pollution reduction. Drawing on the ESG concept, we theoretically analyze the pollution reduction effect of green taxation. Green taxation can improve environmental quality and promote green economic development by changing consumer consumption habits, raising corporate costs, and increasing government investment in environmental protection. In addition, we construct fixed-effect models to empirically test the pollution reduction effect of green taxation, which includes environmental protection tax, consumption tax, resource tax, and vehicle purchase tax. As the research samples, we use data from 29 provinces, municipalities and autonomous regions in China from 2012 to 2017. This section discusses key research findings, makes policy recommendations, and proposes directions for future research.
Our findings show that while the environmental protection tax has significantly reduced sulfur dioxide emissions, it has had little effect on wastewater and industrial solid waste. Our findings, in some ways, are consistent with most of the literature. Tong et al. (2022), for example, reported that environmental protection tax can effectively control air pollution, particularly in regions with higher levy standards. Liu and An (2018) found that the environmental protection tax inhibits the emission reduction of industrial wastewater to some extent, while the inhibitory effect on industrial solid waste is consistent with the research in our paper. The little difference between the two articles in industrial wastewater could be due to the fact that their research index is the amount of industrial wastewater discharged, whereas our research index is the total amount of wastewater discharged. Although it can reduce industrial wastewater discharge, the coefficient between the environmental protection tax and industrial wastewater discharge is only − 0.0404, indicating that the inhibition effect is limited. Therefore, the environmental protection tax must be strengthened further to prevent the discharge of wastewater and waste.
Our findings also show that consumption tax, resource tax, and vehicle purchase tax have unsatisfactory effects on pollution emission reduction. This finding implies that, in the process of developing China's green tax system, all green taxes (except the environmental protection tax) have a certain degree of lack of greenness. This is consistent with the views of Li and Liu (2015). Their research also holds that green taxes such as resource tax, consumption tax and vehicle purchase tax have not effectively reduced the discharge of industrial wastewater, industrial waste gas and industrial solid waste, and may even cause the increase of pollution discharge (Li and Liu, 2015). The poor effect of pollution reduction is also related to the purpose and object of these taxes. These taxes do not initially involve environment protection at the beginning of collection, and the objects of these taxes are not direct pollutant emissions. In a word, many scholars (Chen, 2017; Cui et al., 2018) have suggested that the current green tax system is not perfect, and the green tax reform is an unavoidable requirement for pollution prevention and environmental protection innovation.
The regional robustness test reveals that the effect of environmental protection tax on emission reduction is greater in less developed regions than in more developed regions. Other environmental taxes are also found to have a significant regional impact. Although there have been few studies on the robustness test of green taxation by region, polluting corporations are undeniably shifting from more developed to less developed areas (Chen and Luo, 2022). Since the environmental protection tax has a greater impact on polluting corporates, its emission reduction effect should be better in areas with more polluting corporates. In addition, corporates in more developed regions have higher economic returns and pay less attention to environmental protection tax than those in less developed regions.
Overall, the environmental benefits of green tax are limited. Currently, China's economic development mode has not undergone a fundamental shift, and environmental protection faces numerous problems and challenges. The high pollution control cost and the high energy consumption level severely impede China's ecological civilization construction process. Thus, environmental governance must construct and improve the green taxation system as soon as possible.
Based on research findings, we make three policy recommendations. Firstly, raise the environmental protection tax rate and broaden its collection scope. Our findings show that only the environmental protection tax has a pollution reduction effect, and its impact on wastewater and industrial solid waste is minor. Therefore, the first step is to appropriately raise the tax rate, especially the tax rate on wastewater and solid waste. The total tax revenue generated by the environmental protection tax can be used to pay for the cost of social externalities caused by pollution emissions. In addition, the scope of environmental protection tax should be broadened. Sulfur dioxide, wastewater, and industrial solid waste are currently the objects of the environmental protection tax; however, other pollutants - organic matter, carbon dioxide, and light pollution - are not included in the scope of the environmental protection tax. To deal with these pollutants, environmental protection tax must be adjusted over time in response to changing circumstances (Ma and Zhao, 2020).
Secondly, promote the ESG concept and reduce tax collection costs. Our analysis indicates that tax authorities are not strict in collection and administration, and the cost of collection and administration is a major factor. This issue could be addressed by the ESG report. Incorporating ESG into the design of a green tax system has two benefits. On the one hand, as the market's mainstay, corporates account for a significant portion of pollution emissions, particularly in heavily polluting industries. ESG reports are an important foundation for measuring corporate social responsibility, and ESG rating agencies can provide ESG rating services. On the other hand, green tax collection cannot be separated from corporate disclosure of environmental information. The information provided by the ESG report can be used to collect green taxes, reduce information asymmetry, and lower collection costs (Huang, 2021).
Finally, optimize the top-level design of the green tax system and improve the tax system structure. Our findings show that green taxes (except environmental protection tax) have no effect on pollution reduction. A green tax system, however, cannot be developed solely through environmental protection taxation; it must work in tandem with other green tax instruments. Taxation authorities should broaden the purpose of tax collection, emphasize the importance of environmental protection, and improve taxation's green function. Meanwhile, the current green tax system structure should be rationalized, the proportion of environmental protection tax in tax revenue should be increased, and the green function positioning of each tax should be clarified. The government should establish a green tax system as soon as possible, with the main body consisting of environmental protection tax, resource tax and consumption tax, and the auxiliary body consisting of water resource tax, vehicle and ship tax, income tax, vehicle purchase tax, tariff and other taxes (Lang and Chen, 2020).
Three directions are suggested for future research. Firstly, the impact of green taxes on carbon dioxide emissions has been highly topical in China. In 2017, China launched its carbon emissions trading market and established a national carbon emissions trading system (Zhang et al., 2020). China has also promised to reach a carbon peak by 2030 and become carbon neutral by 2060 (Hu et al., 2022). However, the index selected in our paper is only sulfur dioxide emission, and the impact of green taxation on carbon dioxide emission is not taken into account. The proposal of the Dual Carbon Goal makes the current researchers focus more attention on the emission of carbon dioxide. Future research would be necessary to explore how green taxation should reduce carbon dioxide emissions.
The proposal of the Dual Carbon Goal makes the current researchers focus more attention on the emission of carbon dioxide. There is no tax on carbon dioxide emissions among the existing green taxes, and China has some shortcomings in the construction of carbon tax.
Secondly, green fiscal and tax policies are essential tools for balancing economic growth and environmental protection. If the environmental protection tax rate is too high, economic development is likely to be hampered; if the tax rate is too low, the environmental protection effect is likely to be ignored (Jian, 2022). Future research would be interesting and necessary to look at what tax rate level can balance the relationship between the economy and the environment.
Finally, the ESG concept is mostly used to evaluate corporate social responsibility and sustainable development capability, but rarely appears in the government governance system. Future research is need to determine how to integrate ESG concept into government supervision.