THE ECONOMIC IMPACT OF WATER PRICING: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS

Maria Berrittella, Katrin Rehdanz, Roberto Roson and Richard Tol

No FNU-96, Working Papers from Research unit Sustainability and Global Change, Hamburg University

Abstract: Water is scarce in many countries. One instrument to improve the allocation of a scarce resource is (efficient) pricing or taxation. However, water is implicitly traded on international markets, particularly through food and textiles, so that impacts of water taxes cannot be studied in isolation, but require an analysis of international trade implications. We include water as a production factor in a multi-region, multi-sector computable general equilibrium model (GTAP), to assess a series of water tax policies. We find that water taxes reduce water use, and lead to shifts in production, consumption, and international trade patterns. Countries that do not levy water taxes are nonetheless affected by other countries’ taxes. Taxes on agricultural water use drive most of the economic and welfare impacts. Reductions in water use (welfare losses) are less (more) than linear in the price of water. The results are sensitive to the assumed ability to substitute other production factors for water. A water tax on production would have different effects on water use, production and trade patterns, and the size and distribution of welfare losses than would a water tax on final consumption.

Keywords: Computable General Equilibrium; Virtual Water; Water Allocation; Water Pricing; Water Scarcity (search for similar items in EconPapers)
JEL-codes: D58 Q25 Q28 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2006-01, Revised 2006-01
New Economics Papers: this item is included in nep-agr and nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published, Water Policy, 10 (3), 259-271

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Persistent link: https://EconPapers.repec.org/RePEc:sgc:wpaper:96

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