Can green industrial policy improve total factor productivity? Firm-level evidence from China

Based on unique micro-level data on 18,885 Chinese mining companies, this study explores the effect of tax incentives for green development on mining company total factor productivity (TFP) and its mech-anism of influence. The results are as follows. (1) Tax incentives for green development can improve mining companies' TFP. A 1% increase in tax incentives for mining companies increases TFP by 0.060%. After considering endogeneity and selection bias, our conclusion is still valid. (2) Heterogeneity analysis shows that the positive effect of tax incentives on TFP is more significant for private companies, compa-nies in central and western China and companies in areas with weak environmental controls. (3) There is a two-way causal relationship between tax incentives and TFP, mining companies with higher TFP re-ceive more tax incentives. Further analysis shows that tax incentives improve TFP through technological progress. This study provides Chinese firm-level evidence for the Porter hypothesis. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

The study showed that tax incentives for green development can improve mining companies' total factor productivity, with a more significant impact on private companies and companies in central and western China. There is a two-way causal relationship between tax incentives and TFP, and tax incentives improve TFP through technological progress.