Distributional Effects Of Carbon Tax In China

In this paper,we employed a CGE model to simulate the distribution effects of carbon tax in China.Most studies have assessed the distributional impacts of carbon tax through their effecs on commodity prices alone,while ignoring their impact on individual welfare brought about by changes in factor prices.This paper provides a comprehensive analysis of the incidence of carbon taxe on inequality by considering simultaneously the commodity and the income channels.Results showed that when a carbon tax of 100 RMB/ton is imposed in China,the actual GDP will be reduced slightly by 0.35%~0.5%compared with the baseline.However,a 12.5%?13.6%reduction of carbon dioxide emission can be achieved.Different from previous studies,this paper found that even without tax recycling,carbon tax is progressive in China.Because the degree of progressivity of carbon tax on income source side is stronger than that of regressivity on expenditure side.When the carbon tax revenue is used to increase the transfer payment to rural residents and equally reduce the individual income tax rate of urban residents with medium and lower income levels,it can effectively reduce the negative impact of carbon tax on the income source side and strengthen the progressivity of carbon tax.When carbon tax revenue is used to reduce the production tax by an uniform rate,the carbon tax becomes less progressive on the income source side.But there is still a regressive nature on the expenditure side.As a result,the comprehensive effect is regressive in this scenario.In the case without tax revenue,the simulation results still show that the carbon tax is progressive after disturbance of the key substitution elastic parameters of the original model and transformation of the nested form of production function.To sum up,our results showed that the carbon tax has a slight negative impact on economic growth in China and there is no inequality in income distribution.Therefore,carbon tax is a desirable policy to reduce emissions in China.