The Effect of a Carbon Tax on The Egyptian Economy: A General Equilibrium Analysis

Abeer Elshennawy () and Dirk Willenbockel
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Abeer Elshennawy: The American University in Cairo

No 1525, Working Papers from Economic Research Forum

Abstract: Climate change is a reality in Egypt. Temperatures in Egypt have risen 0.34o C/Decade between 1961-2000. Climate change is likely to aggravate water scarcity problems, reduce agricultural yields and agricultural output as parts of the Nile Delta is threatened by inundation due to sea level rise. Reducing carbon emissions is thus essential. Utilizing an Intertemporal General Equilibrium Model, this paper investigates the effect of implementing a carbon tax on economic growth and consumer welfare. Alternative ways to recycle the tax revenue is also considered. The effect of the carbon tax on economic growth depends on the use of the additional tax revenue. If the revenue is used to fund additional government consumption or cash transfers to private households, the effect is mildly contractionary. If the revenue is used to reduce other tax rates in a way that stimulates additional investment, the carbon tax could have a positive impact on economic activity. The carbon tax has no discernible adverse effects on the distribution of household income.

Pages: 23
Date: 2021-12-20, Revised 2021-12-20
New Economics Papers: this item is included in nep-ara, nep-ene and nep-env
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