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The Effect of a Carbon Tax on The Egyptian Economy: A General Equilibrium Analysis

Author

Listed:
  • Abeer Elshennawy

    (The American University in Cairo)

  • Dirk Willenbockel

    (University of Sussex.)

Abstract

Climate change is a reality in Egypt. Temperatures in Egypt have risen 0.34o C/Decade between 1961-2000. Climate change is likely to aggravate water scarcity problems, reduce agricultural yields and agricultural output as parts of the Nile Delta is threatened by inundation due to sea level rise. Reducing carbon emissions is thus essential. Utilizing an Intertemporal General Equilibrium Model, this paper investigates the effect of implementing a carbon tax on economic growth and consumer welfare. Alternative ways to recycle the tax revenue is also considered. The effect of the carbon tax on economic growth depends on the use of the additional tax revenue. If the revenue is used to fund additional government consumption or cash transfers to private households, the effect is mildly contractionary. If the revenue is used to reduce other tax rates in a way that stimulates additional investment, the carbon tax could have a positive impact on economic activity. The carbon tax has no discernible adverse effects on the distribution of household income.

Suggested Citation

  • Abeer Elshennawy & Dirk Willenbockel, 2021. "The Effect of a Carbon Tax on The Egyptian Economy: A General Equilibrium Analysis," Working Papers 1525, Economic Research Forum, revised 20 Dec 2021.
    • Handle: RePEc:erg:wpaper:1525
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    References listed on IDEAS

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