Can PM2.5 concentration reduced by China's environmental protection tax?

The responsibility of enhancing environmental quality is shouldered by China's Environmental Protection Tax (EPT), which constitutes a vital element of China's tax system greening initiative. Using the difference-in-differences (DID) method, the effects of the EPT on PM2.5 concentration were empirically examined in this study, through panel data of 218 cities in China from 2015 to 2021. The results indicate that the EPT can effectively reduce PM2.5 concentration by approximately 2.4 %, and this conclusion remained unchanged after a series of robustness tests. In the channel analysis, it can be found that the reduction of PM2.5 concentration by the EPT was achieved through the alleviation of financing constraints, technological advancements, and optimization of industrial structure. Heterogeneity analysis indicates that the negative impact of the EPT on PM2.5 concentration was more significant in northern cities, inland cities and non-national environmental protection model cities. Further analysis found that EPT has a stronger inhibitory effect on PM2.5 concentration within 100 % of tax increase. The conclusions remain consistent when spatial spillover effects of PM2.5 are taken into account. This paper provides important empirical evidence to support the effectiveness of emission reductions of EPT and provides valuable insights for the future improvement of EPT. Analytical framework. [Display omitted] •PM2.5 density was reduced by 2.4 % through China's EPT, and stronger inhibitory effect within 100 % of tax increase.•EPT reduces PM2.5 density by easing financing constraints, promoting technical progress, and optimizing industrial structure.•There is obvious regional heterogeneity in the policy effects of the EPT.