Macro-economic and Sectoral Effects of Carbon Taxes: A General Equilibrium Analysis for China

This paper analyzes the macro-economic and sectoral effects of carbon taxes imposed to achieve predefined carbon dioxide (CO2) emission targets for China, by using a dynamic computable general equilibrium model of the Chinese economy. Following a brief introduction of the model, the baseline scenario for the Chinese economy until 2010 is developed under a set of assumptions about the exogenous variables. Next, the paper analyzes the economic implications of two less restrictive scenarios under which China's CO2 emissions in 2010 are cut by 20% and 30%, respectively, relative to the baseline, assuming that carbon tax revenues are retained by the government. Then, the efficiency improvements are computed for four indirect tax-offset scenarios relative to the two tax-retention scenarios already considered. The paper ends with some remarks on constructing a social accounting matrix for China and suggestions for further work to enrich the policy relevance of this study.