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Carbon‐Based Public Finance: Debt‐Alleviating Effects of a Carbon Tax in China

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  • Jingting Zhang
  • Junping Zeng

Abstract

To mitigate China's soaring public debt, we advocate for a carbon‐based public finance system centred around a carbon tax. CGE modelling shows that an origin‐based carbon tax can significantly alleviate debt pressure, a finding subsequently supported by empirical research using a generalised DiD method. We believe that generating public revenue from carbon emissions is highly sustainable. However, spillovers are worth noticing, and destination‐based carbon taxes warrant careful consideration. Apart from a carbon tax, the Chinese government should also advance an auction system for emission allowances in the carbon market, for the establishment of a comprehensive carbon‐based public finance system.

Suggested Citation

  • Jingting Zhang & Junping Zeng, 2026. "Carbon‐Based Public Finance: Debt‐Alleviating Effects of a Carbon Tax in China," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 34(2), pages 261-275, April.
    • Handle: RePEc:wly:ectrin:v:34:y:2026:i:2:p:261-275
    DOI: 10.1111/ecot.70010
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    References listed on IDEAS

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    1. Govinda R. Timilsina & Yazid Dissou & Michael Toman & Dirk Heine, 2024. "How can a carbon tax benefit developing economies with informality? A CGE analysis for Côte d’Ivoire," Climate Policy, Taylor & Francis Journals, vol. 24(1), pages 71-86, January.
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