The Green Bonus of Tax Incentives: Evidence from China

Abstract

Based on a unique dataset of carbon emissions in China’s 2527 counties during 2008-2019 and 1.5 million firms’ energy use from National Tax Survey Dataset, we take advantage of the two rounds of accelerated depreciation policy for fixed assets in 2014 and 2015 in China as natural experiments and empirically evaluate the role of tax incentives in mitigate climate change using a continuous difference-in-difference approach. The results show that: regional carbon emission intensity significantly reduced by 2.56% on average, or 0.0252 tons of carbon emissions per 10 thousand CNY of industrial value-added, after the accelerated depreciation policy came into force. The realization of this effect comes from the surging economic output and stagnated carbon emissions, due to firms’ technological progress and R&D in end-of-pipe, as well as industrial upgrading, which in turn, decline energy scale and intensity, elevate the proportion of clean energy and the efficiency of energy use. This paper reveals the role of tax incentives in global climate governance by reducing carbon emissions.

Keywords: Accelerated depreciation policy, tax incentives, Carbon Emissions, Climate Change