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The economy-wide implications of a tax policy to reduce water pollution: a case of the Olifants river basin, South Africa

Clement Kyei and R. Hassan

No 284737, 2018 Annual Conference, September 25-27, Cape Town, South Africa from Agricultural Economics Association of South Africa (AEASA)

Abstract: The Olifants river basin, which is one of the nine river basins in South Africa ranks as the third most water-stressed basin as well as the most polluted due to pollution from mining activities, irrigation agriculture, and industrial waste disposal. As a result, the government has implemented a series of pollution control measures with the view to mitigating pollution and water shortage in the basin. In this paper, we analysed the regional economic and environmental impacts of a tax policy to reduce water pollution using a Computable General Equilibrium (CGE) model. Firstly, an extended Social Accounting Matrix (SAM) which includes water pollution related activities was constructed for the basin using the framework of environmentally extended SAM. Secondly, we simulate a reduction in current pollution load by increasing the pollution tax rate under alternative revenue recycling schemes. The analyses reveal that internalising the cost of pollution control will effectively reduce the pollution situation in the river basin with marginal negative impact on Real Regional Gross Domestic Product (RRGDP). However, revenue recycling through uniform lump-sum transfers may positively impact RRGDP. In addition, the policy will lead to a change in regional production structure from heavy polluting sectors to less pollution-intensive sectors with benefits to sustainable development and the aquatic ecosystem. JEL codes: C68, Q25, Q28

Keywords: water quality; Olifants River; computable general equilibrium model; South Africa; market-based incentives; Public; Economics (search for similar items in EconPapers)
Date: 2018-09-25
New Economics Papers: this item is included in nep-agr, nep-cmp and nep-env
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DOI: 10.22004/ag.econ.284737

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