Studies and analysis concluded carbon tax increases evasion

This study provides policymakers with two policy suggestions. First, it is suggested that the government should consider the effect of environmental rules on corporate tax avoidance behavior when designing future environmental policy, and more generally, the distorted effect of environmental rules on corporate tax evasion behavior. Second, it is recommended that the government adopt different environmental regulations for different enterprises. Because there are different types of companies in the market, and their respective companies have corresponding characteristics, a one-size-fits-all environmental supervision policy may affect individual companies and cause them to be unable to operate normally.

Taking the 2013 China carbon emissions trading pilot policy as the background, in this study we utilized the DID approach to analyze the effect of environmental regulations on firm tax avoidance. We found that: (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. (2) Environmental regulations increase tax avoidance activities by reducing corporate cash flows. (3) The influence of environmental regulation on firm tax evasion is obvious among non-state enterprises, small-scale enterprises, and enterprises with a high degree of industry competition. The policy contribution of this article is that when the government implements environmental regulation policies, it should consider the possible impact on micro-enterprises.