Market Based Instruments

Market Based Instruments

National Experiences in Environmental Sustainability

Critical Issues in Environmental Taxation series

Edited by Larry Kreiser, David Duff, Janet E. Milne and Hope Ashiabor

This detailed book explores how market based environmental strategies are used in various countries around the world. It investigates how successful sustainability strategies used by one country can be transferred and used successfully in other countries, with a minimum of new research and experimentation. Leading environmental taxation scholars discuss this question and analyse a set of key case studies.

Chapter 6: Economic impact analysis on China’s environmental tax reform through a static computable general equilibrium analysis

Changbo Qin, Jinnan Wang, Chazhong Ge, Shuting Gao, Qianqian Liu and Yajuan Ren

Subjects: economics and finance, environmental economics, public finance, environment, environmental economics, environmental law, law - academic, environmental law, tax law and fiscal policy


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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