Towards reducing inter-city economic inequality embedded in China’s environmental protection tax law

Cities are at the front line of combating environmental pollution and climate change, thus support from cities is crucial for successful enforcement of environmental policy. To mitigate environmental problems, China introduced at provincial level the Environmental Protection Tax Law in 2018. Yet the resulting economic burden on households in different cities with significantly different affluence levels remains unknown. The extent of the economic impacts is likely to affect cities’ support and public acceptability. This study quantifies the economic burden of urban households from taxation of fine particle pollution (PM2.5) for 200 cities nationwide from a ‘consumer’ perspective, accounting for PM2.5 and precursor emissions along the national supply chain. Calculations are based on a multi-regional input–output analysis, the official tax calculation method and urban household consumption data from China’s statistical yearbooks. We find that the current taxation method intensifies economic inequality between cities nationally and within each province, with some of the richest cities having lower tax intensities than some of the poorest. This is due to the fact that taxes are collected based on tax rates of producing regions rather than consuming regions, that cities with very different affluence levels within a province bear the same tax rate, and that emission intensities in several less affluent cities are relatively high. If the tax could be levied based on tax rates of each city where the consumer lives, with tax rates determined based on cities’ affluence levels and with tax revenues used to support emission control, inter-city economic inequality could be reduced. Our work provides quantitative evidence to improve the environmental tax and can serve as the knowledge base for coordinated inter-city policy.