Environmental regulation and corporate tax avoidance: A quasi-natural experiment based on the eleventh Five-Year Plan in China

Taking the 11th Five-Year Plan in China as a quasi-natural experiment, this paper explores the impact of environmental regulation on corporate tax avoidance based on firm-level data and the difference-in-difference-in-differences (DDD) method. We find that: (1) Environmental regulation has a significant positive effect on corporate tax avoidance, and several robustness checks confirm our findings; (2) Heterogeneity analysis show that this effects are more significant for private firms and for firms in the regions with less fiscal stress and that in the east part of China; (3) Two channels identified are the operating risks and financing constraints; (4) Further analysis show that the 11th Five-Year Plan has spillover effects on firms in low-emission industries. The increased tax avoidance of firms in high-emission industries contributes to a raised tax burden on firms in low-emission industries. Our study provides implications for the formulation of environmental policies in developing countries •The impact of environmental regulation on corporate tax avoidance is explored.•Environmental regulation makes firms become more tax aggressive.•Two channels identified are the operating risks and the financing constraints.•Environmental regulation has spillover effects on firms in low-emission industries.