Environmental taxes, environmental outsourcing, and pollution abatement: Evidence from Chinese industrial sewage discharge enterprises

Polluting enterprises purchase technologies, goods, or services from external enterprises to mitigate pollution, which is called environmental outsourcing. This paper examines the effect of environmental taxes (ETs) on pollution abatement when environmental outsourcing is prevalent. We build a novel enterprise-level panel dataset for 2011–2018 and employ staggered difference-in-differences (DID) estimators to investigate the heterogeneous responses of in-house and outsourced abatement enterprises to the environmental tax increments. Our research demonstrates that imposing environmental taxes for pollution control has a significant positive effect. However, the environmental taxes have failed to successfully transmit their impacts on the changes in compliance costs of polluting enterprises through pollution treatment fees in the end-of-pipe treatment process. It has been demonstrated that environmental outsourcing seriously dilutes and even hinders the efficacy of environmental taxes in reducing water pollution. These findings shed fresh insight on the relationship between environmental policies and outsourcing services and highlight the necessity of incorporating environmental outsourcing into the design of environmental policies.