Abstract: As an important part of environmental regulatory institutional tools, whether the environmental protection fee-to-tax reform officially implemented in China in 2018 will have significant environmental governance effects on micro enterprises has received little attention in the literature. Based on the interaction-oriented perspective of macro fiscal policy and micro corporate behavior, the study takes the data of Chinese A-share listed companies in Shanghai and Shenzhen as samples during 2011-2021, and adopts the double-difference method to examine in-depth the impacts and mechanisms of environmental protection tax on corporate environmental governance effects. The study finds that the implementation of environmental protection tax has a production reduction effect on the environmental governance of enterprises to reduce the scale of pollution, but has no effect on improving the green innovation capability of enterprises. The reason for this is the increase in resource constraints and environmental compliance pressure at the early stage of policy implementation, which in turn changes enterprises’ expectations of future business conditions and intensifies the competition of managers’ short-term profit-seeking behavior. The study also found that the environmental governance effect of the environmental protection tax policy is more pronounced in enterprises with higher media attention, larger enterprises, enterprises with non-labor-intensive enterprise types, enterprises in heavily polluting industries, and enterprises located in the east-central region, and this conclusion still holds after conducting robustness and placebo tests.

Key words: environmental protection tax, production scale, green innovation, environmental governance effects