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The Economic Impact Of Water Pricing: A Computable General Equilibrium Analysis

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Author Info

  • Maria Berrittella
  • Katrin Rehdanz
  • Roberto Roson
  • Richard S.J. Tol

    ()
    (Economic and Social Research Institute, Dublin)

Abstract

Water is scarce in many countries. One instrument to improve the allocation of a scarce resource is (efficient) pricing or taxation. However, water is implicitly traded on international markets, particularly through food and textiles, so that impacts of water taxes cannot be studied in isolation, but require an analysis of international trade implications. We include water as a production factor in a multi-region, multi-sector computable general equilibrium model (GTAP), to assess a series of water tax policies. We find that water taxes reduce water use, and lead to shifts in production, consumption, and international trade patterns. Countries that do not levy water taxes are nonetheless affected by other countries’ taxes. Taxes on agricultural water use drive most of the economic and welfare impacts. Reductions in water use (welfare losses) are less (more) than linear in the price of water. The results are sensitive to the assumed ability to substitute other production factors for water. A water tax on production would have different effects on water use, production and trade patterns, and the size and distribution of welfare losses than would a water tax on final consumption.

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File URL: http://www.fnu.zmaw.de/fileadmin/fnu-files/publication/working-papers/FNU96.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Research unit Sustainability and Global Change, Hamburg University in its series Working Papers with number FNU-96.

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Length: 23 pages
Date of creation: Jan 2006
Date of revision: Jan 2006
Publication status: Published, Water Policy, 10 (3), 259-271
Handle: RePEc:sgc:wpaper:96

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Related research

Keywords: Computable General Equilibrium; Virtual Water; Water Allocation; Water Pricing; Water Scarcity;

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References

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  1. Decaluwe, B. & Patry, A. & Savard, L., 1999. "`When Water Is No Longer Heaven Sent: Comparative Pricing Analysis in an AGE Model," Papers 9905, Laval - Recherche en Politique Economique.
  2. Dinar, A. & Subramanian, A., 1997. "Water Pricing Experiences," Papers 386, World Bank - Technical Papers.
  3. Burniaux, Jean-Marc & Truong Truong, 2002. "GTAP-E: An Energy-Environmental Version of the GTAP Model," GTAP Technical Papers 923, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  4. Diao, Xinshen & Roe, Terry, 2003. "Can a water market avert the "double-whammy" of trade reform and lead to a "win-win" outcome?," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 708-723, May.
  5. Maria Berrittella & Katrin Rehdanz & Arjen Y. Hoekstra & Roberto Roson & Richard S.J. Tol, 2006. "The Economic Impact Of Restricted Water Supply: A Computable General Equilibrium Analysis," Working Papers FNU-93, Research unit Sustainability and Global Change, Hamburg University, revised Jul 2006.
  6. Noelwah R. Netusil & Thomas R. Harris & Chang K. Seung & Jeffrey E. Englin, 2000. "Impacts of water reallocation: A combined computable general equilibrium and recreation demand model approach," The Annals of Regional Science, Springer, vol. 34(4), pages 473-487.
  7. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April.
  8. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 6(4), April.
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Citations

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Cited by:
  1. Maria Berrittella & Katrin Rehdanz & Richard S.J. Tol, 2006. "The Economic Impact Of The South-North Water Transfer Project In China: A Computable General Equilibrium Analysis," Working Papers FNU-117, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2006.
  2. Alvaro Calzadilla & Katrin Rehdanz & Richard Betts & Pete Falloon & Andy Wiltshire & Richard S.J. Tol, 2010. "Climate Change Impacts on Global Agriculture," Working Papers FNU-185, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2010.
  3. Roberto Roson & Martina Sartori, 2010. "Water Scarcity and Virtual Water Trade in the Mediterranean," Working Papers 2010_08, Department of Economics, University of Venice "Ca' Foscari".
  4. Roberto Ponce & Francesco Bosello & Carlo Giupponi, 2012. "Integrating Water Resources into Computable General Equilibrium Models - A Survey," Working Papers 2012.57, Fondazione Eni Enrico Mattei.
  5. Dinar, Ariel, 2012. "Economy-wide implications of direct and indirect policy interventions in the water sector: lessons from recent work and future research needs," Policy Research Working Paper Series 6068, The World Bank.
  6. Alvaro Calzadilla & Katrin Rehdanz & Richard S.J. Tol, 2008. "Water Scarcity And The Impact Of Improved Irrigation Management: A Cge Analysis," Working Papers FNU-160, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2008.
  7. Maria Berrittella & Katrin Rehdanz & Richard S.J. Tol & Jian Zhang, 2007. "The Impact Of Trade Liberalisation On Water Use: A Computable General Equilibrium Analysis," Working Papers FNU-142, Research unit Sustainability and Global Change, Hamburg University, revised Aug 2007.
  8. Niemeyer, Insa & Garrido, Alberto, 2011. "Latin American Agricultural Trade: The Role of the WTO in Sustainable Virtual Water Flows," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114615, European Association of Agricultural Economists.
  9. Alvaro Calzadilla & Katrin Rehdanz & Richard S.J. Tol, 2008. "The Eonomic Impact Of More Sustainable Water Use In Agriculture: A Computable General Equilibrium Analysis," Working Papers FNU-169, Research unit Sustainability and Global Change, Hamburg University, revised Dec 2008.
  10. Roberto Roson & Martina Sartori, 2011. "Climate Change and Virtual Water Trade in the Mediterranean," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 3, September.

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