Natural Disaster, Tax Avoidance, and Corporate Pollution Emissions: Evidence from China

Our study explores how climate risk affects the tax behavior of governments and local firms, subsequently affecting corporate pollution emissions. Using data on Chinese non-state-owned industrial enterprises from 1998 to 2014, we empirically investigate the impact of natural disasters on corporate tax avoidance. The results indicate that companies in earthquake-damaged areas are less likely to avoid taxes than those in unaffected areas. Furthermore, companies that pay more taxes after a disaster can secure favorable government environmental policies, as indicated by a rise in pollution emissions. Moreover, this effect is more pronounced for less polluting firms and firms with higher financial constraints. Our study contributes to the literature on taxation and ESG from the perspective of favor-exchange in government–firm relationships.