Does the environmental tax affect the within-firm pay gap? Evidence from China

The impact of the environmental tax on internal income distribution within firms is a crucial extension for evaluating the economic effects of environmental regulation policies. However, the existing literature focuses primarily on environmental effects and the Porter hypothesis, giving little attention to this topic. Using data from Chinese A-share listed companies from 2018 to 2021, we examine how the Chinese environmental protection tax affects intrafirm wage disparities. Our findings indicate that the environmental tax widens the pay gap between managerial and ordinary employees. Mechanism tests show that the environmental tax's governance effect raises managerial compensation levels, whereas cost effects decrease wages for ordinary employees. This effect is particularly pronounced in nonstate-owned firms, competitive industries, and regions with stricter environmental tax collection standards. This study makes an empirical contribution to our understanding of the effects of the environmental tax on income distribution in practice.