Environmental regulation and corporate tax avoidance:A quasi-natural experiments study based on China's new environmental protection law

Environmental regulation may lead to firm's behavior changes. This article explores the effects of environmental regulation on corporate tax avoidance activities. Using China's new Environmental Protection Law as a quasi natural experiment, we construct a difference-in-difference-in-differences(DDD) strategy for estimation. We find that environmental regulation will significantly increase the corporate tax avoidance activities in polluting industries in highly regulated cities. We further examine the heterogeneous effects of political connection, and find that political connection may promote corporate tax avoidance activities under stringent environmental regulation. The promoting effects are mainly due to the political connection with local governments rather than with central government.

Automated summary

This article examines the impact of environmental regulation on corporate tax avoidance activities, finding that it significantly increases tax avoidance in polluting industries in regulated cities, and political connections may promote tax avoidance activities under strict environmental regulations, particularly with local governments.