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Carbon Policy and Inclusive Growth

Author

Listed:
  • Anh H. Le

    (Goethe University Frankfurt)

  • John Beirne

    (Asian Development Bank)

  • Donghyun Park

    (Asian Development Bank)

  • Gazi Salah Uddin

    (Linköping University)

Abstract

We empirically examine the impact of carbon pricing on key macroeconomic variables and inclusive development with a newly compiled panel dataset covering 48 countries from 1989 to 2024. Using the local-projection difference-in-differences approach, we find that the introduction of carbon pricing significantly reduces carbon emissions but also imposes substantial macroeconomic costs. Countries with carbon prices experience lower gross domestic product (GDP), lower consumption, and higher debt-to-GDP ratios. In addition, carbon pricing is associated with increased income inequality and a decline in human development. The adverse effects are particularly pronounced in countries with high public debt but are notably more muted in countries with higher environmental spending. Importantly, environmental spending mitigates many negative impacts of carbon pricing while reducing emissions.

Suggested Citation

  • Anh H. Le & John Beirne & Donghyun Park & Gazi Salah Uddin, 2025. "Carbon Policy and Inclusive Growth," ADB Economics Working Paper Series 804, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:021558
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    File URL: https://www.adb.org/publications/carbon-policy-inclusive-growth
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H00 - Public Economics - - General - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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