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On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia

Author

Listed:
  • Arief Anshory Yusuf

    (Department of Economics, Padjadjaran University)

  • Budy P. Resosudarmo

    (Australian National University)

Abstract

This 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.

Suggested Citation

  • Arief Anshory Yusuf & Budy P. Resosudarmo, 2007. "On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200705, Department of Economics, Padjadjaran University, revised Aug 2007.
  • Handle: RePEc:unp:wpaper:200705
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    File URL: http://ceds.feb.unpad.ac.id/wopeds/200705.pdf
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    References listed on IDEAS

    as
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. What economics can (and can't) tell us, part 1: carbon taxes
      by Hannah Ryder in DFID bloggers on 2011-07-12 17:00:00

    Citations

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    Cited by:

    1. Jan Imhof, 2012. "Fuel Exemptions, Revenue Recycling, Equity and Efficiency: Evaluating Post-Kyoto Policies for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(II), pages 197-227, June.
    2. Dorothee Boccanfuso & Antonio Estache & Luc Savard, 2011. "The Intra-country Distributional Impact of Policies to Fight Climate Change: A Survey," Journal of Development Studies, Taylor & Francis Journals, vol. 47(1), pages 97-117.
    3. Arief Anshory Yusuf, 2008. "INDONESIA-E3: An Indonesian Applied General Equilibrium Model for Analyzing the Economy, Equity, and the Environment," Working Papers in Economics and Development Studies (WoPEDS) 200804, Department of Economics, Padjadjaran University, revised Sep 2008.
    4. Asafu-Adjaye, John & Mahadevan, Renuka, 2013. "Implications of CO2 reduction policies for a high carbon emitting economy," Energy Economics, Elsevier, vol. 38(C), pages 32-41.
    5. Emmanuel Combet & Frédéric Ghersi & Jean Charles Hourcade & Daniel Théry, 2010. "Carbon Tax and Equity : The Importance of Policy Design," Post-Print halshs-00692516, HAL.
    6. Callan, Tim & Lyons, Sean & Scott, Susan & Tol, Richard S.J. & Verde, Stefano, 2009. "The distributional implications of a carbon tax in Ireland," Energy Policy, Elsevier, vol. 37(2), pages 407-412, February.
    7. Venkatachalam Anbumozhi & Armin Bauer, 2013. "How Low-Carbon Green Growth Can Reduce Inequalities," Development Economics Working Papers 23423, East Asian Bureau of Economic Research.
    8. James Davies & Xiaojun Shi & John Whalley, 2014. "The possibilities for global inequality and poverty reduction using revenues from global carbon pricing," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(3), pages 363-391, September.
    9. Emmanuel Combet & Frédéric Ghersi & Jean Charles Hourcade, 2009. "Taxe carbone, une mesure socialement régressive ? Vrais problèmes et faux débats," CIRED Working Papers hal-00866409, HAL.
    10. Qianwen Li & Ruyin Long & Hong Chen, 2018. "Measurements and Factors That Influence the Carbon Capability of Urban Residents in China," Sustainability, MDPI, Open Access Journal, vol. 10(4), pages 1-22, April.
    11. Emmanuel Combet & Frédéric Ghersi & Jean Charles Hourcade & Daniel Théry, 2009. "Need a Carbon Tax be Socially Regressive ? True Challenges and Wrong Debates," CIRED Working Papers hal-00866410, HAL.
    12. Djoni Hartono & Tony Irawan & Ahmad Komarulzaman, 2014. "Energy Pricing Policies in Indonesia: A Computable General Equilibrium Model," EcoMod2014 7344, EcoMod.
    13. Hallegatte, Stephane & Heal, Geoffrey & Fay, Marianne & Treguer, David, 2011. "From growth to green growth -- a framework," Policy Research Working Paper Series 5872, The World Bank.
    14. Emmanuel Combet & Frédéric Ghersi & Jean Charles Hourcade & Daniel Théry, 2009. "Need a Carbon Tax be Socially Regressive ? True Challenges and Wrong Debates," Working Papers hal-00866410, HAL.
    15. Frédéric Ghersi & Emmanuel Combet & Jean Charles Hourcade & Camille Thubin, 2010. "Économie d'une fiscalité carbone en France - Rapport d'étude réalisée avec le soutien de l'ADEME et de la CFDT‐IRES," Post-Print halshs-00458205, HAL.
    16. Budy P. Resosudarmo & Frank Jotzo & Arief A. Yusuf & Ditya A. Nurdianto, 2011. "Challenges in Mitigating Greenhouse Gas Emissions: The Importance of Policies for Fossil Fuel Combustion," CCEP Working Papers 1108, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    17. Ditya Agung Nurdianto, 2016. "Economic Impacts of a Carbon Tax in an Integrated ASEAN," EEPSEA Special and Technical Paper tp201604t5, Economy and Environment Program for Southeast Asia (EEPSEA), revised Apr 2016.
    18. Wang, Qian & Hubacek, Klaus & Feng, Kuishuang & Wei, Yi-Ming & Liang, Qiao-Mei, 2016. "Distributional effects of carbon taxation," Applied Energy, Elsevier, vol. 184(C), pages 1123-1131.
    19. Jiang, Zhujun & Shao, Shuai, 2014. "Distributional effects of a carbon tax on Chinese households: A case of Shanghai," Energy Policy, Elsevier, vol. 73(C), pages 269-277.
    20. Yudha Prambudia & Masaru Nakano, 2012. "Environmental Performance of East Asia Summit Countries from the Perspective of Energy Security," Sustainability, MDPI, Open Access Journal, vol. 4(12), pages 1-28, November.
    21. Nicholas Kilimani, 2014. "Water Taxation and the Double Dividend Hypothesis," Working Papers 201451, University of Pretoria, Department of Economics.
    22. Qin, Ping. & Chen, Peilin. & Zhang, Xiao-Bing. & Xie, Lunyu., 2020. "Coal taxation reform in China and its distributional effects on residential consumers," Energy Policy, Elsevier, vol. 139(C).
    23. Emmanuel Combet & Frédéric Ghersi & Jean Charles Hourcade, 2009. "Taxe carbone, une mesure socialement régressive ? Vrais problèmes et faux débats," Working Papers hal-00866409, HAL.
    24. Dorothée Boccanfuso & Antonio Estache & Luc Savard, 2008. "Distributional impact of global warming environmental policies: A survey," Cahiers de recherche 08-14, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.

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    More about this item

    Keywords

    Carbon Tax; Climate Change; Distribution; CGE; Indonesia;
    All these keywords.

    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 and their Management; Global Warming
    • 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

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