Can Environmental Protection Tax Promote Urban Green Transformation? Experimental Evidence from China

As one of China’s important environmental and economic policies, the environmental protection tax (EPT) is important in promoting economic and social green transformation. In this study, the green total factor productivity (GTFP) of 283 prefecture-level cities in China from 2013 to 2022 was calculated using a Super Slack-Based Model (Super-SBM) and the Malmquist-Luenberger (ML) index, which includes undesirable outputs. Moreover, the implementation effect of environmental tax on promoting urban green transformation is identified through the difference-in-differences (DID) model. This study revealed that (1) an EPT can significantly increase the GTFP of a city and promote its green transformation. (2) Industrial structure optimization and technological innovation are important mechanisms through which EPT drives urban green transformation. (3) The implementation effect of EPT in promoting urban green transformation presents significant policy differences across geographic locations, whether cities are key environmental protection cities or types of resource-based cities. EPT can significantly promote the green transformation of local cities, which in turn can positively affect the green transformation of neighboring cities. Based on this study’s conclusions, suggestions are put forward to improve the EPT system to promote urban green transformation.