The external effects of tax reduction incentive policies on green innovation – from the perspective of supply chain spillovers

Tax incentive policies are widely used to foster green innovation, but their supply-chain spillovers remain underexamined. This paper explores the impact of upstream and downstream firms’ tax incentives on midstream enterprises’ green innovation using China’s National Enterprise Tax Survey Data and listed firm data spanning 2008–2016. Baseline estimates indicate that downstream tax-incentive exposure is positively and statistically significantly associated with midstream green innovation, whereas no robust statistically significant association is found for upstream exposure. Innovation-composition tests further show that downstream exposure is associated with more green patent applications, a higher green share, fewer non-green patent applications, and no statistically significant change in total patent applications, indicating a green-oriented reallocation rather than a general expansion of innovation. On this basis, this paper further takes China’s 2014 Accelerated Depreciation Policy for Fixed Assets as a quasi-natural experiment and applies the Double Machine Learning (DML) method to provide policy-based identification evidence on tax incentives and supply-chain green innovation spillovers. Mechanism analysis provides evidence consistent with liquidity, corporate-vitality, and ESG-related channels. Heterogeneity analysis shows that the downstream coefficient is larger and statistically significant among midstream enterprises facing stricter environmental regulation, employing executives with environmental backgrounds, or receiving greater media attention.