Can Market-Based Environmental Regulation Inhibit the Industrial Water Pollution?

Environmental tax, as an essential part of China's green tax reform, plays a key role in promoting the construction of an ecological society. To empirically test the policy effect of environmental taxes, this study used the panel data from 274 prefecture-level cities for the period 2012-2020 to explore whether the implementation of environmental tax can reduce the intensity of industrial water pollution. The main results are as follows: (1) The implementation of environmental tax can significantly reduce the emission of industrial water pollution, and the policy effect has shown a persistent trend. (2) In terms of heterogeneity, we find that the impact of environmental tax on reducing industrial water pollution is higher in central-western regions. (3) Mechanism analysis shows that the policy effect of environmental tax is mainly through channels such as enhancing law enforcement rigidity and improving local green innovation. Our findings provide new evidence for understanding the green dividend effect of environmental tax and provide significant policy implications for China's ecological society.