Volatility in VAT Revenue-Sharing Ratios and Enterprises’Green Transformation Risk

【Authors】

PENG Fei, WANG Chen & HU Shengming

【WorkUnit】

【Abstract】

Promoting a comprehensive green transformation is an intrinsic requirement and a basic way to build a beautiful China and promote Chinese modernization. In the face of multiple challenges, such as slowing economic growth and an increasingly complex external environment, addressing constraints on green transformation is critical for resolving resource, environmental, and ecological issues while achieving sustainable economic development. Standardizing the tax revenue framework among sub-provincial governments has become a key link in deepening fiscal and taxation reforms and promoting green transformation.
Using fiscal statistics and pollution data of industrial enterprises, this study examines the effect of fluctuations in city- and county-level tax share rates on the risk of green transformation facing enterprises and how. The theoretical analysis finds that future share rate fluctuations increase pollution output and reduce total factor productivity. Empirical findings confirm that heightened municipal and county-level share rate volatility significantly increases enterprises’ emission intensity and lowers the total factor productivity, exacerbating the risk of green transformation. The effect is particularly pronounced in regions with greater economic growth pressure, weaker environmental targets, and reduced incentives for tax reductions. Mechanism analysis shows that the share rate fluctuations weaken environmental regulations and intensify financing constraints, thereby increasing the risk of enterprises’ green transformation.
This paper makes three key contributions to the literature. First, it expands the theoretical perspective on green transformation. While existing studies have discussed the impact of tax share changes on the business environment and corporate behavior, this paper highlights the amplified effects of share rate fluctuations on the risk of green transformation, filling a critical gap in theoretical research and micro-level evidence in the field of tax share dynamics. Second, it expands the research on the economic effects of fiscal revenue fluctuations. While existing literature, based on tax revenue and transfer payment uncertainty, argues that fiscal revenue fluctuations increase local governments’ tax collection efforts, exacerbate enterprises’ tax burdens, and reduce local governments’ supply of public goods, this paper focuses on the impact of tax share volatility on the green transformation risk facing firms, enriching the research perspective on fiscal revenue volatility. Finally, this paper reveals the green transformation risk effect of VAT share volatility from the perspectives of environmental regulation and financing constraints. This paper identifies the causes of tax incentives for firms’ green transformation and upgrading by incorporating environmental regulations and financing constraints into a unified analytical framework.

JEL: H32, H77, Q58

【KeyWords】

Sharing Rate Volatility, Green Transformation, Pollution Emissions, Total Factor Productivity, Sub-Provincial Tax-Sharing