American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Environmental Bias of Corporate Income Taxation
American Economic Review
(pp. 3510–51)
Abstract
We study the relationship between corporate income taxation and carbon dioxide (CO2) emissions in the United States. We show CO2-intensive firms benefit more from the tax advantage of debt and pay lower income taxes on their capital income. Building on these new facts, we provide evidence that a cut in the corporate income tax rate leads to a larger expansion of clean firms. We develop a multisector general equilibrium model that accounts for our evidence and quantify the impact of corporate tax reforms on aggregate emissions. A policy that eliminates the tax advantage of debt could reduce aggregate emissions without affecting GDP.Citation
Iovino, Luigi, Thorsten Martin, and Julien Sauvagnat. 2026. "The Environmental Bias of Corporate Income Taxation." American Economic Review 116 (9): 3510–51. DOI: 10.1257/aer.20241765Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
- Q52 Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
- Q54 Climate; Natural Disasters and Their Management; Global Warming
- Q58 Environmental Economics: Government Policy