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The green bonus of tax incentives: Evidence from China

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  • Wu, Qingyang
  • Wang, Yaqi
  • Shen, Guangjun

Abstract

Using a novel dataset covering over one million firm-level energy consumption entries from 2007-2016, we employ a difference-in-differences approach to estimate the causal effect of tax incentives on carbon emission intensity by exploiting China’s staggered implementation of accelerated depreciation policies for fixed assets in 2014 and 2015. We find that the accelerated depreciation policy leads to a significant 9.19% reduction in carbon emission intensity, equivalent to 0.11 tons of carbon emissions per 10,000 RMB of industrial value added. The policy effect is more pronounced for large firms, those with medium-term assets, and in regions with greater market integration and industrial agglomeration. Our firm-level analysis reveals that the policy reduces energy consumption, promotes a shift towards a cleaner energy portfolio and increases R&D investments in abatement technologies, as well as climate-friendly innovations. The above results show high consistency with verification at the aggregation level using satellite-based observations. Our findings highlight the potential of well-designed fiscal policies to contribute to global climate action efforts in developing economies.

Suggested Citation

  • Wu, Qingyang & Wang, Yaqi & Shen, Guangjun, 2024. "The green bonus of tax incentives: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 227(C).
  • Handle: RePEc:eee:jeborg:v:227:y:2024:i:c:s0167268124003548
    DOI: 10.1016/j.jebo.2024.106740
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    More about this item

    Keywords

    Accelerated depreciation policy; Tax incentives; Carbon emission intensity; Green patent; Climate change;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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