On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia
AbstractThis paper analyses the distributional impact of carbon tax in Indonesia, one of the largest carbon emitter developing countries. Using a Computable General Equilibrium (CGE) model with disaggregated households, the result suggests that in contrast to most studies from industrialised countries, the introduction of carbon tax in Indonesia is not necessarily regressive. Its structural change and resource reallocation effect, following the carbon tax, is in favor of factors endowed more proportionately by rural, and lower income households. In addition, the expenditure of lower income households, especially in rural area, are less sensitive to the prices of energy-related commodities. Revenue-recycling through uniform reduction in commodity tax rate may reduce the adverse aggregate output effect, whereas uniform lumpsum transfers may enhance the progressivity. This study demonstrates an example, that encouraging developing countries to reduce carbon emission, may not only increase the efficiency of carbon abatement globally, but also have desirable distributional implication in the developing countries themselves.
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Bibliographic InfoPaper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 200705.
Date of creation: May 2007
Date of revision: Aug 2007
Carbon Tax; Climate Change; Distribution; CGE; Indonesia;
Find related papers by JEL classification:
- D30 - Microeconomics - - Distribution - - - General
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-26 (All new papers)
- NEP-ENE-2007-05-26 (Energy Economics)
- NEP-ENV-2007-05-26 (Environmental Economics)
- NEP-PBE-2007-05-26 (Public Economics)
- NEP-SEA-2007-05-26 (South East Asia)
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