Carbon‐Based Public Finance: Debt‐Alleviating Effects of a Carbon Tax in China

Jingting Zhang and Junping Zeng

Economics of Transition and Institutional Change, 2026, vol. 34, issue 2, 261-275

Abstract: To mitigate China's soaring public debt, we advocate for a carbon‐based public finance system centred around a carbon tax. CGE modelling shows that an origin‐based carbon tax can significantly alleviate debt pressure, a finding subsequently supported by empirical research using a generalised DiD method. We believe that generating public revenue from carbon emissions is highly sustainable. However, spillovers are worth noticing, and destination‐based carbon taxes warrant careful consideration. Apart from a carbon tax, the Chinese government should also advance an auction system for emission allowances in the carbon market, for the establishment of a comprehensive carbon‐based public finance system.

Date: 2026
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https://doi.org/10.1111/ecot.70010

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Persistent link: https://EconPapers.repec.org/RePEc:wly:ectrin:v:34:y:2026:i:2:p:261-275

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