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The Economic Impact Water Taxes: a Computable General Equilibrium Analysis with an International Data Set

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Author Info

  • Maria Berrittella

    (Centro Interdipartimentale di Ricerche sulla Programmazione Informatica dell'Economia e delle Tecnologie (CIRPIET), University of Palermo)

  • Katrin Rehdanz

    (Research Unit Sustainability and Global Change, Hamburg University)

  • Roberto Roson

    ()
    (Department of Economics, University Of Venice Ca' Foscari,and Fondazione Eni Enrico Mattei)

  • 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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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2008_05.

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Length: 34
Date of creation: 2008
Date of revision:
Handle: RePEc:ven:wpaper:2008_05

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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. 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.
  2. Decaluwé, B. & Patry, A. & Savard, L., 1999. "When Water is no Longer Heaven Sent: Comparative Pricing Analysis in an AGE Model," Cahiers de recherche 9908, Université Laval - Département d'économique.
  3. Anthony Letsoalo & James Blignaut & Theuns de Wet & Martin de Wit & Sebastiaan Hess & Richard S.J. Tol & Jan van Heerden, 2005. "Triple Dividends Of Water Consumption Charges In South Africa," Working Papers FNU-62, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2005.
  4. Dinar, Ariel & Yaron, Dan, 1992. "Adoption and abandonment of irrigation technologies," Agricultural Economics, Blackwell, vol. 6(4), pages 315-332, April.
  5. 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.
  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.
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Cited by:
  1. 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.
  2. 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.
  3. Valeria Di Cosmo, 2011. "Are the Consumers Always Ready to Pay? A Quasi-Almost Ideal Demand System for the Italian Water Sector," Water Resources Management, Springer, vol. 25(2), pages 465-481, January.
  4. Xiuli Liu & Xikang Chen & Shouyang Wang, 2009. "Evaluating and Predicting Shadow Prices of Water Resources in China and Its Nine Major River Basins," Water Resources Management, Springer, vol. 23(8), pages 1467-1478, June.

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