Abstract
Environmental tax policy plays an important role in promoting economic efficiency, but it is unclear whether the taxation is well-designed and effective. The differentiated environmental tax and fee policy in China has come a long way in the past 20 years, along with the aim of high-quality economic development that focuses on the harmony of environment and productivity, so it is necessary to evaluate the effectiveness of the differentiated environmental tax and fee policy. This paper constructs a pollution and environmental tax model based on the new economic geography framework to simulate the effect of environmental tax and technological innovation in the eastern and western region on pollution, output, and productivity. Using China’s provincial panel data from 2005 to 2020 with difference-in-difference method, empirical evidence shows that differentiated environmental tax and fee adjustments generally boost industrial high-quality development by the industrial sulfur dioxide emission deduction and green total factor productivity improvement. When the adjustment is more differentiated between treatment and control, the effect is greater and more significant. Additionally, high environmental tax standard in high SO2 emission provinces significantly contributes to high-quality development. Progressive adjustments in 2007, 2014, and 2018 lead to heterogeneous policy effect. Technological innovation plays a mediating effect between differentiated environmental tax and high-quality economic development. The results above provide theoretical analysis and empirical study of China’s differentiated environmental taxes and high-quality economic development for policy making.
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Data availability
The datasets used and/or analyzed during the current study are available from the corresponding author on reasonable request.
Notes
The data is calculated from the Annual Report on Environment Statistics and Annual Report of Ecology and Environment Statistics.
The meaning of environmental taxes varies across countries. The environmental tax system levied in China in 2018 contains consumption tax, resource tax, vehicle and vessel tax, farmland tax, construction tax, and sewage charge (environmental tax), which is called “quasi-environmental tax” (Liu & An, 2018). Environmental taxes in the USA include energy (e.g., fuel tax), environment (e.g., ozone depletion tax), transportation (e.g., motor vehicle tax), and pollution (e.g., waste disposal tax), and in Germany include energy (e.g., electricity tax), pollution (e.g., wastewater pollution tax), and transportation (e.g., aviation tax).
Before 2005, China implemented a low and relatively uniform sewage charge standard. For instance, in 2003, cities such as Hangzhou, Changchun, and Zhengzhou levied sewage charge higher than 0.2 RMB per pollution equivalent for SO2, but differentiated charges within the whole nation have not been implemented.
The ranking of provinces along the x axis is firstly increasingly sorted by the environmental tax standards, then further increasingly sorted by the average industrial SO2 emission as environmental tax is equal across provinces.
In other words, a manufacture needs to transport \(\tau\) unit of industrial goods to supply one unit of industrial goods to the other region.
For convenience, the western variables are labeled with superscript asterisk and the overall variables are labeled with superscript \(w\). To avoid comparative advantage, let \(L/{L}^{*}=K/{K}^{*}\).
Obviously, \(\frac{d\gamma }{dt}<0\) and \(\frac{d{\gamma }^{*}}{d{t}^{*}}<0\), i.e., in the case that the environmental taxes stimulate technological innovation, the higher the environmental tax rate is, the lower the emission intensity would be.
\(\mu\) is the consumption share of industrial product \((0<\mu <1)\); \(1-\mu\) is the consumption share of agricultural product.
\(\sigma (\sigma >1)\) is the elasticity of substitution between any two industrial goods.
Among the function, \(\pi\) and \({\pi }^{*}\) denotes capital revenue, \(x\) and \({x}^{*}\) is the output, respectively, and \(\alpha\) is marginal labor input.
For convenience, let \(\Delta =n+{n}^{*}\phi\), \({\Delta }^{*}=n\phi +{n}^{*}\).
The eastern demand for industrial goods produced in the western region is \({c}_{2}^{*}=\mu {\text{y}}{P}_{M}^{\sigma -1}{({p}_{2}^{*})}^{-\sigma }\). The western demand for industrial goods produced in the eastern region is \({c}_{1}^{*}=\mu {\text{y}}^{*}{\left({P}_{M}^{*}\right)}^{\sigma -1}{\left({p}_{1}^{*}\right)}^{-\sigma }\).
Actually, the values of \({\gamma }_{0}\) and \({\gamma }_{0}^{*}\) can be arbitrary. The values chosen in this paper attempt to reach a maximum bearable SO2 emission level for the economy.
For convenience, the sewage charges and environmental taxes are jointly referred to as environmental protection taxes and fees.
Before 2005, China implemented a low and relatively uniform sewage charges standard. For instance, in 2003, cities such as Hangzhou, Changchun and Zhengzhou levied sewage charge higher than 0.2 RMB per pollution equivalent for SO2, but differentiated charges within the whole nation haven’t been implemented.
The gross industrial output \(\mathrm{lnind}\) represents the expected output; the industrial SO2 emission \({\mathrm{lnso}}_{2}\) represents the non-expected output; the input variables are annual average workers employed by industrial companies above the scale (\(\mathrm{lnlabor}\)), capital stock (\(\mathrm{ln}K\)), and total regional energy consumption (\(\mathrm{lnenergy}\)). Capital stock is obtained by fixed asset investment of the whole society with perpetual inventory method, and the initial capital stock is obtained by dividing the social fixed asset investment in the initial period by annual average growth rate of the study period, and the depreciation rate is 9.6% (Zhang et al. 2004).
We assume that local government determines environmental tax standard based on the past industrial SO2 pollution, so the average SO2 emissions are calculated by provinces from 2016 to 2018.
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This work was supported by the National Social Science Foundation of China (No. 16BJY060).
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All authors contributed to the study conception and design. Yaxiong Zhou: methodology, validation, software, funding acquisition, writing—original draft preparation. Wenxin Yang: conceptualization, investigation, writing—review and editing.
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Zhou, Y., Yang, W. Differentiated environmental taxes and high-quality economic development in China: theory and evidence. Environ Sci Pollut Res 30, 114222–114238 (2023). https://doi.org/10.1007/s11356-023-30168-6
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DOI: https://doi.org/10.1007/s11356-023-30168-6