Under the pressure of global warming, it is imperative for Chinese government to impose
effective
policy instruments to promote domestic energy saving and carbon emissions reduction. As one of the
most important incentive-based policy instruments, carbon tax has sparked a lively controversy
in China. This paper explores the impact of carbon tax on Chinese economy, as well as the cushion
effects of the complementary policies, by constructing a dynamic recursive general
equilibrium model. The model can describe the new equilibrium for each sequential independent
period (e.g. one year) after carbon tax and the complementary policies are imposed, and thus
describe the long-term impacts of the policies. The simulation results show that carbon tax is
an effective policy tool because it can reduce carbon emissions with a little negative impact on
economic growth; reducing indirect tax in the meantime of imposing carbon tax will help to reduce
the negative impact of the tax on production and competitiveness; in addition, giving
households subsidy in the meantime will help to stimulate household consumptions. Therefore,
complementary policies used together with carbon tax will help to cushion the negative impacts of
carbon tax on the economy. The dynamic CGE analysis shows the impact of carbon tax policy on
the GDP is relatively small, but the reduction of carbon emission is
relatively large.
Under the pressure of global warming, it is imperative for Chinese government to impose
effective
policy instruments to promote domestic energy saving and carbon emissions reduction. As one of the
most important incentive-based policy instruments, carbon tax has sparked a lively controversy
in China. This paper explores the impact of carbon tax on Chinese economy, as well as the cushion
effects of the complementary policies, by constructing a dynamic recursive general
equilibrium model. The model can describe the new equilibrium for each sequential independent
period (e.g. one year) after carbon tax and the complementary policies are imposed, and thus
describe the long-term impacts of the policies. The simulation results show that carbon tax is
an effective policy tool because it can reduce carbon emissions with a little negative impact on
economic growth; reducing indirect tax in the meantime of imposing carbon tax will help to reduce
the negative impact of the tax on production and competitiveness; in addition, giving
households subsidy in the meantime will help to stimulate household consumptions. Therefore,
complementary policies used together with carbon tax will help to cushion the negative impacts of
carbon tax on the economy. The dynamic CGE analysis shows the impact of carbon tax policy on
the GDP is relatively small, but the reduction of carbon emission is
relatively large.
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