Impact of environmental tax on pollution control: A sustainable development perspective

China's implementation of the Environmental Protection Tax Act in 2018 aimed to promote sustainable development and reduce pollutant emissions yet its mechanism and impact of pollution reduction are not clear. This study collected data from 287 cities between 2010 and 2019 in order to evaluate the impact of this tax on reducing pollution and assess its mechanism. The results show that the environmental tax had a significant spillover effect on reducing emissions of sewage, waste gases, and solid waste, suggesting that the implementation of environmental tax policies and their emission reduction effects can be enhanced through regional collaboration and intergovernmental cooperation. Furthermore, the impact of pollution control was more significant in cities with a higher concentration of heavy polluting enterprises, that is, the central and eastern regions and cities with large population. The impact of the policy was threefold: Firstly, the tax prompted the control of pollution by changing the external costs of pollution into the internal costs for businesses. Secondly, through the promotion of green innovation, the regulating bodies tracked and limited their pollutant emissions. Thirdly, the policy boosted the development of environmental protection facilities which aid in controlling pollutant emissions. The mechanism analysis suggests that the pollution control effectiveness of environmental taxation can be further improved by adopting a comprehensive and multi-dimensional approach to environmental protection measures. This study offers valuable policy guidance for the effective implementation of environmental taxation and provides a solid theoretical foundation for collaborative pollution control and multi-dimensional alleviation of environmental pollution, thus it has significant implications for promoting sustainable development.& COPY; 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.