Evaluating the environmental and economic impacts of Carbon Tax Using Computable General Equilibrium Model (CGE)

Subject Areas : Applied Economics

جمشید پژویان ¹ (ندارد)
حسن معین نعمتی ² (ندارد)

Received: 2009-08-05 Accepted : 2010-03-10 Published : 2010-06-22

Keywords: carbon tax, general equilibrium model, two level production function, conditional demand for input, unit cost function,

Abstract :

This paper deals with environmental, welfare and employment effects of Carbon Tax. Carbon tax as a policy instrument, internalizes the external cost of air pollution in price of fuel. The very objective of carbon tax is not only to reduce fuel consumption and hence reduce harmful emissions made by economic agents, but also to lessen the tax burden on wage earners and reduce labor cost which in turn provides incentives for job creation. This study uses Computable General Equilibrium Model which is revenue neutral, i.e. total tax income is taken constant in the model. The model is a non- linear equation system. GAMS as a Software along with input – output table pertaining to Iranian economy is used to solve the mode. The model was calibrated to base year 1378[1].  The findings in this study indicate that the use Carbon Tax as a policy instrument to alleviate the Burdon of tax on labor income, would improve qualitavely the environmental standards and reduce the environmental concerns besides to positive impact on employment and welfare gains.