Trade policy and air pollution: Evidence from the adjustment of the export tax rebate in China

Air pollution is intricately intertwined with international trade. Nevertheless, existing studies have provided limited attention to comprehending the underlying mechanisms that elucidate the impact of the export tax rebate (ETR) policy—widely employed to promote exports—on haze pollution. Leveraging a quasi-experiment centered on the reduction of ETR for pollution-intensive products in China during 2007, we utilize a difference-in-differences approach to investigate the causal impact of ETR adjustments on haze pollution. Our findings unveil a noteworthy reduction in PM2.5 concentration concurrent with the decrease in ETR for pollution-intensive products. Mechanism analyses reveal that the reduction in ETR for such products primarily enhances air quality through the magnification of scale effects, including the restriction of pollution-related sector outputs, the reduction of polluting enterprises entering the market, and the facilitation of the exit of existing polluters. However, these adjustments do not exert their influence through technological effect, such as fostering innovation.