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On the distributional impact of a carbon tax in developing countries: the case of Indonesia

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  • Arief Yusuf
  • Budy Resosudarmo

Abstract

This paper, using a computable general equilibrium model with highly disaggregated household groups, analyses the distributional impact of a carbon tax in a developing economy. Indonesia, one of the largest carbon emitters among developing countries, is utilized as a case study in this paper. The result suggests that, in contrast to most industrialised country studies, the introduction of a carbon tax in Indonesia is not necessarily regressive. The structural change and resource reallocation effect of a carbon tax is in favour of factors endowed more proportionately by rural and lower income households. In addition, the expenditure of lower income households, especially in rural areas, is less sensitive to the price of energy-related commodities. Revenue-recycling through a uniform reduction in the commodity tax rate may reduce the adverse aggregate output effect, whereas uniform lump-sum transfers may enhance progressivity. Copyright Society for Environmental Economics and Policy Studies and Springer Japan 2015

Suggested Citation

  • Arief Yusuf & Budy Resosudarmo, 2015. "On the distributional impact of a carbon tax in developing countries: the case of Indonesia," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(1), pages 131-156, January.
    • Handle: RePEc:spr:envpol:v:17:y:2015:i:1:p:131-156
    DOI: 10.1007/s10018-014-0093-y
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