The Effect of Carbon Emission Taxes on Environmental and Economic Systems

Zhengge Tu, Botao Liu, Dian Jin, Wei Wei and Jiayang Kong
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Zhengge Tu: School of Economics and Business Administration, Central China Normal University, Wuhan 430079, China
Botao Liu: School of Economics and Business Administration, Central China Normal University, Wuhan 430079, China
Dian Jin: School of Economics and Business Administration, Central China Normal University, Wuhan 430079, China
Wei Wei: School of Economics and Business Administration, Central China Normal University, Wuhan 430079, China
Jiayang Kong: School of Economics and Business Administration, Central China Normal University, Wuhan 430079, China

IJERPH, 2022, vol. 19, issue 6, 1-16

Abstract: Carbon dioxide is believed widely to be the major contributor to global warming. Policymakers worldwide are turning to tax policies in an effort to abate carbon emissions. China is the largest emitter of carbon emissions on our planet. The central government, as well as the local official, has introduced a series of environmental regulations, such as environmental protection tax and emissions trading system, to reduce carbon emissions and improve environmental quality. In the near future, the carbon emission tax is also expected to be implemented by the Chinese government. In order to analyze and predict the effect of the carbon emission tax on environmental and economic systems, we developed a four department dynamic stochastic general equilibrium model, which includes households, enterprises, the government, and the environment. The dynamic parameters were obtained using maximum likelihood estimation. In the comparative static-s analysis, we found that after the introduction of carbon emission tax, the level in environmental quality was substantially improved, whereas most economic variables were significantly reduced. Moreover, we used impulse responses functions to evaluate how one shock to the carbon emission tax affects the steady static values for these endogenous variables in our model. We found that the carbon emission tax shock has an instantaneous effect on the majority of economic variables, but it does not affect the environmental quality immediately. In addition, we tested the Porter hypothesis and found no evidence suggesting the statement regarding this hypothesis. Finally, we applied Bayesian estimation to assure our findings in this study, again.

Keywords: carbon emission tax; environmental quality; macroeconomic performance; evaluation index; dynamic stochastic general equilibrium (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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