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Short-Run Effects of A Carbon Tax

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  • R.A. McDougall

Abstract

This paper presents estimates of short-run sectoral and economy-wide effects of the introduction of a carbon tax in Australia. The results are derived using an enhanced version of the ORANI multi-sectoral model of the Australian economy. We simulate the introduction of a carbon tax at a rate of 1991-92 $25 per tonne, designed to achieve the Toronto target of a 20 per cent reduction in carbon dioxide emissions below the 1988 level by 2005. We find that the macroeconomic impact would depend critically on the extent to which price rises flowed through into wage rates. Assuming fixed money wages, real GDP would be decreased by an estimated 0.9 per cent, and employment by 1.2 per cent. To maintain a given employment level in the face of the carbon tax would require a reduction in the foreign-currency-equivalent wage rate estimated at 2.8 per cent. This would also entail a decrease in the real wage rate (defined with respect to the consumption price deflator) of 2.8 per cent. Government could promote lower wage outcomes by returning the carbon tax revenue to the community through reductions in other taxes. Enhancements to ORANI used in this simulation include disaggregation of the fossil fuel sector and provision for carbon taxation.

Suggested Citation

  • R.A. McDougall, 1993. "Short-Run Effects of A Carbon Tax," Centre of Policy Studies/IMPACT Centre Working Papers g-100, Victoria University, Centre of Policy Studies/IMPACT Centre.
  • Handle: RePEc:cop:wpaper:g-100
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    Citations

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    Cited by:

    1. Disna Sajeewani & Mahinda Siriwardana & Judith Mcneill, 2015. "Household Distributional And Revenue Recycling Effects Of The Carbon Price In Australia," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-23.
    2. Antonia Cornwell & John Creedy, 1996. "Carbon taxation, prices and inequality in Australia," Fiscal Studies, Institute for Fiscal Studies, vol. 17(3), pages 21-38, August.
    3. Maruf Rahman Maxim & Kerstin Zander, 2020. "Green Tax Reform and Employment Double Dividend in Australia Should Australia Follow Europe’s Footsteps? A CGE Analysis," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(4), pages 454-472, November.
    4. Maruf Rahman Maxim & Kerstin K. Zander, 2020. "Green Tax Reform in Australia in the Presence of Improved Environment-Induced Productivity Gain: Does It Offer Sustainable Recovery from a Post-COVID-19 Recession?," Sustainability, MDPI, vol. 12(16), pages 1-18, August.
    5. Sam Meng & Mahinda Siriwardana & Judith McNeill, 2014. "The Impact of the Australian Carbon Tax on Industries and Households," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 8(1), pages 15-37, February.
    6. Rokicki, Bartlomiej & de Souza, Kenia Barreiro & de Santana Ribeiro, Luiz Carlos, 2023. "Modelling the Effects of the EU Emissions Trading System in Poland: A Comparison Between IO And CGE Results," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 53(2), 14.
    7. Sam Meng & Mahinda Siriwardana & Judith McNeill, 2013. "The Environmental and Economic Impact of the Carbon Tax in Australia," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(3), pages 313-332, March.
    8. Jan Hagemejer & Zbigniew Żółkiewski, 2013. "Short-run impact of the implementation of EU climate and energy package for Poland: computable general equilibrium model simulations," Bank i Kredyt, Narodowy Bank Polski, vol. 44(3), pages 237-260.
    9. Anan Wattanakuljarus, 2019. "Effects and burdens of a carbon tax scheme in Thailand," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 173-219, June.

    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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