National Experiences in Environmental Sustainability
Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, David Duff, Janet E. Milne and Hope Ashiabor
Chapter 6: Economic impact analysis on China’s environmental tax reform through a static computable general equilibrium analysis
In this chapter, the GREAT-W model is further extended into the General Equilibrium Analysis System for Environment (GREAT-E) to assess the economic impacts of China’s environmental taxation reform. The simulation results show that the imposition of environmental taxes has a very limited impact on China’s macro-economy, in which the reduction in gross domestic product (GDP) can be made within the affordable range. Relatively, the emission reduction effect of the imposition of environmental taxes on pollutants is much greater than its negative effect on economic development. It suggests that imposing environmental taxes can lead to important shifts in production, consumption, value-added, and trade patterns. In order to promote the internalization of environmental cost, it is suggested to raise the pollution tax/charge standard and, at the same time, the government should reduce the adverse impact of the imposition of environmental taxes by such means as to lessen the income tax or to provide subsidies to the vulnerable groups. Relative shortage of resources and limited environmental capacity have become the new basic characteristics of China’s national conditions, whereas China’s economic aggregate will continue to expand and environmental pressure will continue to increase.
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