Abstract:    The enactment of the Environmental Protection Tax Law marks a pivotal milestone in formulating the fiscal policies for China′s green development. As a prototypical market-based environmental regulation tool, how environmental tax influences corporate green innovation has become a focal issue of concern for both academic and practical sectors. This paper examined the mechanism through which environmental tax affects green innovation among Chinese listed firms, from a perspective of tax policy implementation. Using a sample of A-share listed companies from 2018 to 2022, the study yielded several key findings: First, environmental tax has a significant positive effect on corporate green innovation. This effect is more pronounced among firms located in southern regions, those with higher levels of digitalization, and younger firms. Second, failure tolerance plays a moderating role in the relationship between environmental tax and green innovation—firms with higher failure tolerance exhibit a stronger positive response to environmental tax incentives. Third, the positive impact of environmental tax on green innovation is partly driven by resource reallocation: firms divert financial and technological resources away from other projects, leading to a crowding-out effect. Finally, the study found that as environmental tax expenditure increases, firms are more inclined to invest in substantive rather than symbolic green innovation initiatives. This paper has enriched the literature on how national environmental policies influence corporate green innovation strategies and it will offer a new perspective for assessing the relationship between environmental taxation and green innovation.

Key words: environmental tax, green innovation, tolerance, resource competition, green innovation motivation