Does pollution levy standard reform promotes green innovation? Evidence from China

Taking advantage of the quasi-natural experiment generated by the adjustment of pollution levy standard in different Chinese provinces and utilizing detailed prefecture-level data from 2004 to 2014, we rigorously examine the effect of an increase in pollution levy standard on green innovation by adopting the difference-in-differences method. We find that an increase in pollution levy standard can significantly promote regional green innovation, with a magnitude of nearly 12.8%, as compared with their control group. Additionally, we find that financial development and intellectual property protection tend to reinforce the positive effects. Our study suggests that the Chinese government should strengthen its institutional structure to promote green innovation.