The Impact of Climate and Environmental Governance Policy Uncertainty on Corporate Tax Avoidance: Does Financial Constraint Matter? Evidence from China

This study investigates whether and how climate and environmental governance policy uncertainty shapes corporate tax avoidance. Using a comprehensive panel of 25,316 firm-year observations from 4700 Chinese listed firms over 2002–2024, we document that both climate and environmental governance policy uncertainty are associated with significantly lower effective tax rates, reflecting changes in firms’ tax planning behavior under policy uncertainty. Further, we show that this effect is economically and statistically transmitted through firms’ financing conditions. A battery of identification strategies, including lagged specifications, propensity score matching, and entropy balancing, confirms the robustness of the findings. Cross-sectional analyses further reveal that the effect is more pronounced among carbon-intensive, climate-sensitive, and less regulated firms. These findings imply that policy instability in climate and environmental governance may unintentionally incentivize corporate tax avoidance, thereby undermining both fiscal capacity and the effectiveness of environmental policy frameworks.