Environmental regulation and corporate tax avoidance—Evidence from China

Abstract

In this study, we used a difference-in-difference (DID) approach to analyze the effect of environmental regulation on corporate tax avoidance behavior based on China’s carbon emissions trading pilot policy of 2013. Our findings were as follows: (1) Environmental regulation has led companies to adopt further tax evasion behaviors. Furthermore, the core conclusion was confirmed after a series of robust and endogenous tests, such as parallel trends and PSM-DID (propensity score matching-difference-in-difference). (2) Environmental regulations increase tax avoidance activities by reducing corporate cash flows. (3) The influence of environmental regulation on firm tax evasion is highly pronounced among non-state-owned enterprises, big-scale enterprises, and enterprises with a high degree of industry competition.