4068 
3235Promoting the green transformation of development mode is an important link in achieving high-quality development. At the same time, tax incentives have played a positive role in stimulating market vitality and assisting in the rescue of firms. So, is the growth effect of tax reduction “environmentally neutral”? That is, will tax incentives promote the green transformation of production mode while promoting firm investment?
This paper incorporates firm emission behavior into the standard neoclassical after-tax investment model. From the theoretical level, it demonstrates that the impact of VAT reform on firm emissions will depend on the degree of substitution and complementarity between capital investment and pollutant by-products. If the scale effect and cleaner production effect of new capital on firm emission behavior are large enough, there is a substitution relationship between capital investment and pollutants. That is, the VAT reform will reduce firm emission intensity and promote green development. Then, this paper empirically investigates how China’s VAT reform in 2009 affected the green transformation of production mode based on the financial and emission database of industrial firms during 2005-2013. Empirical evidence shows that the VAT reform significantly reduces firm emission intensity. That is, tax incentives arising from the VAT reform significantly promote firm green development. Heterogeneity analysis shows that tax incentives have a more obvious emission reduction effect on higher-pollution industries, non-export firms and incumbent firms. Following the whole process of pollutant generation, this paper analyzes the influence mechanism of VAT reform to promote green development and the improvement of end-treatment ability. The mechanism test shows that tax incentives enable firms to quickly update equipment investment and technology and improve pollution-control capabilities to cope with environmental regulatory pressures. In addition, there is a strong policy synergy between the VAT reform and environmental regulation, and the former can significantly enhance the implementation effect of the latter. Finally, this paper calculates the elasticity of the effect of tax incentives on firm green development. For every 1% decrease in the cost of capital after-tax, firm emission intensity will decrease by 0.71% to 1.64%.
The marginal contributions of this paper are as follows: First, it analyzes the impact of China’s VAT reform on the green transformation of production mode, which helps to comprehensively assess the policy effect of the implementation of large-scale tax and tax reduction policies. Second, it empirically examines the policy synergy between tax reduction policies and environmental regulations, which provides theoretical and empirical support for relevant literature such as how to strengthen and improve the effect of environmental regulation policies.
