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Spatial threshold effect of tax competition on carbon dioxide emissions intensity in China

Fan, X, Huang, H, Li, K, Chang, C-H and Shi, W (2022) Spatial threshold effect of tax competition on carbon dioxide emissions intensity in China. Climate Policy. ISSN 1469-3062

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Tax policymaking in China has created conditions for local governments to strategically leverage tax policies (e.g., tax preferences, tax collection and management efficiency, and fiscal subsidies) to have carbon dioxide (CO2) emissions peak before 2030 and carbon neutrality before 2060. By constructing an endogenous growth model with tax competition, capital mobility, technological innovation, and carbon emissions, this study investigates how tax competition is influencing firmlevel behavior and providing climate-relevant policy implications. It has theoretically demonstrated that this effect depends on technological innovation and operates through the capital mechanism. This finding is empirically confirmed in this analysis using a spatial panel threshold model with fixed effects designed to fit a balanced provincial panel dataset in China over the period 2005–2018. The main results are fourfold. First, provinces with similar carbon emissions intensity (CEI) tend to cluster spatially. That is, a province with a high CEI usually has neighbors with high CEIs. Second, a threshold effect is confirmed, revealing that higher tax collection and management efficiency (lower tax competition) decreases CEI if technological innovation is below the threshold value; otherwise, lower tax competition usually increases CEI. Third, capital mobility is a potential mechanism through which tax competition influences CEI. Specifically, provinces with a high level of technological innovation attract more knowledge- and technologyintensive firms and crowd out firms with low innovation capacities, potentially reducing local CEI. Finally, as indicated in our spatial heterogeneity analysis, the effect of higher tax competition decreasing CEI is only observed in the western region. These findings suggest the need for crossprovincial collaboration in developing taxation policies to ensure these policies help to advance the transition to a low-carbon economy and raise capital entry barriers for high-carbon emission projects in provinces with a low level of technological innovation.

Item Type: Article
Uncontrolled Keywords: 1402 Applied Economics; 1605 Policy and Administration; 1801 Law; Environmental Sciences
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
J Political Science > JQ Political institutions Asia
Divisions: Engineering
Publisher: Taylor & Francis
SWORD Depositor: A Symplectic
Date Deposited: 21 Oct 2022 09:50
Last Modified: 20 Oct 2023 00:50
DOI or ID number: 10.1080/14693062.2022.2137098
URI: https://researchonline.ljmu.ac.uk/id/eprint/17917
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