The impact of environmental protection tax on green total factor productivity: China’s exceptional approach

To empirically assess green taxation's role in environmental preservation, we leverage China's Environmental Protection Tax (EPT) law implementation as a quasi-natural experiment to examine its influence on Green Total Factor Productivity (GTFP). Our empirical results suggest that GTFP improved more considerably in localities that raised their EPT minimum taxable threshold. EPT affects GTFP through three primary mechanisms. First, it enhances the efficiency of solid waste utilization, contributing to environmental governance. Next, the law stimulates local advancements in green innovation. Finally, it elevates social awareness and commitment towards environmental protection. In addition, we discover that when two adjoining localities jointly raise their EPT taxable threshold, the effect on their GTFP is magnified due to spatial spillovers.