Carbon Policy and Inclusive Growth

Anh H. Le, John Beirne, Donghyun Park and Gazi Salah Uddin
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Anh H. Le: Goethe University Frankfurt
Donghyun Park: Asian Development Bank
Gazi Salah Uddin: Linköping University

No 804, ADB Economics Working Paper Series from Asian Development Bank

Abstract: We empirically examine the impact of carbon pricing on key macroeconomic variables and inclusive development with a newly compiled panel dataset covering 48 countries from 1989 to 2024. Using the local-projection difference-in-differences approach, we find that the introduction of carbon pricing significantly reduces carbon emissions but also imposes substantial macroeconomic costs. Countries with carbon prices experience lower gross domestic product (GDP), lower consumption, and higher debt-to-GDP ratios. In addition, carbon pricing is associated with increased income inequality and a decline in human development. The adverse effects are particularly pronounced in countries with high public debt but are notably more muted in countries with higher environmental spending. Importantly, environmental spending mitigates many negative impacts of carbon pricing while reducing emissions.

Keywords: carbon pricing; inclusive growth; climate change; environmental policy; transition risk (search for similar items in EconPapers)
JEL-codes: D63 E31 E50 E62 H00 Q58 (search for similar items in EconPapers)
Pages: 23
Date: 2025-09-22
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:021558

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