The impact of water resource taxes on total factor water efficiency

Abstract

Widespread promotion of resource tax reform is of critical importance in China's efforts to promote resource conservation and speed up the development of a more ecological planet. Using the Differences-in-Differences (DID) approach, this article empirically assesses the impact of water resource tax reform on total factor water efficiency and its mechanism of action in order to examine the effect of China's water resource tax reform policy from 2010 to 2019. According to the study, water resource tax reform enhances total factor water efficiency substantially. Following a battery of robustness tests, this conclusion remains valid. Further examination of the policy's mechanism finds that it encourages increases in total factor water efficiency through increasing marketization, enhancing innovation capabilities, supporting industrial structure upgrades, and strengthening the intensity of environmental regulations. The research in this article provides a basis for decision-making and so further promotes the pilot policy of water resource tax reform across the country.