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Tax Policy and Total Factor Carbon Emission Efficiency: Evidence from China’s VAT Reform

Author

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  • Da Gao

    (School of Literature, Law and Economics, Wuhan University of Science and Technology, Wuhan 430070, China)

  • Xinlin Mo

    (School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China)

  • Ruochan Xiong

    (School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China)

  • Zhiliang Huang

    (School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China)

Abstract

China, the world’s largest carbon emitter, urgently needs to improve its carbon emissions efficiency. This study analyzes the impact of tax policy on total factor carbon emission efficiency (TFCEE). Using the Value Added Tax (VAT) reform in China as an exogenous shock and undesirable-SBM model to measure the total factor carbon emission efficiency of 282 cities in China from 2003 to 2019, our multiple difference-in-difference (DID) estimates show that VAT reform significantly improves the TFCEE in the city level. These potential mechanisms show that VAT reform has promoted upgrading industrial structures, stimulated technological innovation, improved human capital, introduced FDI through four channels, and enhanced the TFCEE. The heterogeneity study found that VAT reform has a higher effect on promoting TFCEE in coastal and large megacities than in inland and small and medium-sized cities. This study provides a theoretical basis for policy instruments to improve energy efficiency and the environment.

Suggested Citation

  • Da Gao & Xinlin Mo & Ruochan Xiong & Zhiliang Huang, 2022. "Tax Policy and Total Factor Carbon Emission Efficiency: Evidence from China’s VAT Reform," IJERPH, MDPI, vol. 19(15), pages 1-17, July.
    • Handle: RePEc:gam:jijerp:v:19:y:2022:i:15:p:9257-:d:874646
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    References listed on IDEAS

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