Environmental Taxes and Corporate Investment

This paper examines the role of environmental taxes in corporate investment decisions. Using data on firms in Spain and leveraging an emission tax increase in 2013 in the autonomous Community Valenciana, we provide evidence that environmental taxes reduce investment. Surprisingly, this effect does not depend on the level of emissions, but rather on the degree to which firms bear the tax burden. Investments of firms with low capital supply elasticity or with higher customer or supplier demand elasticity are most affected by environmental taxes. We validate these insights using a sample of 26 European countries and variation in electricity taxes