The impact of tax enforcement on corporate energy efficiency: Evidence from a tax collection reform in China

Abstract

The central Chinese government has transferred some of the authority to collect local firms' income tax from local tax bureaus (LTBs) to state tax bureaus (STBs) to strengthen its control over local tax sources, resulting in a change in the intensity of tax enforcement of firms. Exploiting this quasi-natural event, we use a regression discontinuity design to examine the association between tax enforcement and energy efficiency. We find that firms whose taxes are collected by LTBs have significantly higher energy efficiency than firms whose taxes are collected by STBs. Further analysis shows that more lenient tax collection by LTBs eases firms' financial constraints and prompts firms to adopt cleaner energy structures and conduct more green innovation activities to improve energy efficiency. Heterogeneity analyses show that the main effects are more pronounced when the local government has a larger fiscal surplus or faces greater environmental pressure and when firms have no foreign business or a poor financial condition.