The effects of tax policies on corporate green practices: differences in effects depending on the industry targeted and the behavior promoted

De Boe, Grégory [UCL] Swaen, Valérie [UCL] Lamensch, Marie [UCL]

A challenge in transitioning to a more sustainable society concerns the transformation of production and consumption modes. Sustainable Development Goal (SDG) 12 – Ensure sustainable consumption and production patterns – seeks to respond to this challenge by engaging key actors, including the public and private sectors. On the one hand, the public sector is committed to the full achievement of the SDGs by taking measures ‘including (…) restructuring taxation and phasing out (…) harmful subsidies’. On the other hand, the private sector is encouraged to invest and innovate, especially to mitigate climate change. There is consensus that the transition to a more sustainable society has a fiscal dimension. The contemporary debate in environmental policy circles has evolved and shifted from justifying the need for government intervention to support green innovation to how that intervention should be designed for optimal effect. Literature on the effects of a given tax instrument or regulation on corporate behaviors improving the environmental impact is in practice nuanced or ambiguous. The effects appear to vary depending on the industry studied or the behavior promoted. This leads to the following research question: To what extent and under what conditions do tax policies influence the behavior of companies in the European Economic Area to reduce their environmental impact? By tax policies, we mean both taxation and subsidy policies. Specifically, we analyze whether differences in the observed effects of tax policies can be explained by the industry studied or by the type of behavior promoted. We conduct a systematic literature review of 130 scientific articles based on the Preferred Reporting Items for Systematic Reviews and Meta-Analyses approach. We first identify the behaviors that the tax policies studied seek to promote (e.g. investment in green technologies) and the industries (e.g. manufacturing) that have attracted the most attention. We then aggregate the findings related to the influence of a given tax instrument (e.g. a carbon tax) on the adoption of behaviors by companies leading to an improvement in their environmental impact. We seek to explain whether the results are specific to particular industries and/or behaviors and whether external factors can be considered moderating variables and warrant further research. We contribute to the extant literature in two ways. First, we identify the differences in effects between taxes and subsidies and highlight the elements that modify the influence of tax instruments on behaviors of companies leading to an improved environmental impact: tax level, external factors, adverse effects and conflicting goals of tax instruments. This paper is fully in line with the selected panel because it contributes to identify elements explaining why some policies (here fiscal) fail or succeed in leading companies towards more sustainable practices. Second, we identify six topics for further research avenues: the relationship between the tax level and corporate behaviors, the individual and combined effects of external factors modifying the effects of taxes, the adverse effects of taxes, the reasons justifying the disparate effects of subsidy policy, the role of tax policy in changing business models and the industries worth studying.