Dose Environmental Taxation Promote Green Investment by Enterprises? Evidence from Chinese Listed Firms

In the context of global climate change and industrial low-carbon transition, whether environmental taxes can simultaneously promote environmental and economic benefits by stimulating corporate green investment remains a central issue in academic research. Existing studies have reached mixed conclusions regarding the effects of environmental taxes, emphasizing either the “innovation compensation” effect or the “crowding-out” effect. However, this binary perspective overlooks the internal boundary conditions under which environmental taxes operate, particularly the roles of market competition and firm-level resource endowments. In particular, limited attention has been paid to how competitive market environments shape firms’ responses to environmental regulation. To address this gap, this study develops an integrated analytical framework that combines external market competition with internal firm endowments. Using China’s 2018 Environmental Protection Tax Law as a quasi-natural experiment and a panel dataset of Chinese listed firms from 2009 to 2024, this study employs a Difference-in-Differences (DID) approach to examine the impact of environmental taxation on corporate green investment. The results show that: (1) the environmental protection tax significantly promotes corporate green investment, with substantial heterogeneity across firm size, ownership structure, and regional institutional environments; (2) market competition serves as an important external moderating mechanism, as intensified competition strengthens firms’ incentives to pursue technological differentiation through green investment, thereby generating an “escape-competition effect”; and (3) from an internal perspective, the effectiveness of environmental taxation is also shaped by firm endowments. High investment activity provides the necessary resource buffer to support strategic pivots, whereas rapid revenue growth and high financial slack (excessive cash ratio) generate strategic inertia, thereby attenuating firms’ responsiveness to the tax shock. This study not only provides empirical evidence from China on the mechanisms through which environmental taxes influence corporate green transformation, but also offers important policy implications for improving environmental tax systems in other countries.