Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire
In an economy with substantial informality, a carbon tax can produce fiscal co-benefits that improve economic performance in addition to reducing carbon dioxide emissions. If the carbon tax revenues are used to cut production or labor taxes on form...
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/795411624476995767/Carbon-Tax-in-an-Economy-with-Informality-A-Computable-General-Equilibrium-Analysis-for-Cote-d-Ivoire http://hdl.handle.net/10986/35830 |
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okr-10986-358302021-06-25T05:10:46Z Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire Timilsina, Govinda Dissou, Yazid Toman, Mike Heine, Dirk CARBON TAX INFORMALITY INFORMAL ECONOMY GENERAL EQUILIBRIUM MODEL GREENHOUSE GAS EMISSIONS TAXATION TAX REVENUE In an economy with substantial informality, a carbon tax can produce fiscal co-benefits that improve economic performance in addition to reducing carbon dioxide emissions. If the carbon tax revenues are used to cut production or labor taxes on formal firms, particularly those not in the energy sector, the cost of imposing the carbon tax is reduced, and there may even be net economic benefits. These tax cuts can also provide an incentive for informal firms to move to formal parts of the economy. This study confirms these hypotheses using a computable general equilibrium model for Côte d’Ivoire. However, the scale and even the sign of overall economic impacts and formal-informal sectoral interactions are sensitive to the scheme and scale of revenue recycling. The largest fiscal co-benefits, in terms of gross domestic product and economic welfare gains, would occur when the entire carbon tax revenue, after keeping the government revenue neutral, is used to cut existing labor or production taxes for non-energy formal firms. Reducing the existing value-added tax also increases gross domestic product and economic welfare, but without reducing the informality. The study also shows that energy producers should be exempted from using the carbon tax revenues to cut their production or labor taxes; otherwise, carbon dioxide reduction decreases due to a rebound effect. Although a carbon tax with lump-sum transfers of revenues is progressive, it would be economically inefficient because of gross domestic product and welfare reduction and lack of incentives to encourage informal activities to move to the formal parts of the economy. 2021-06-24T15:42:39Z 2021-06-24T15:42:39Z 2021-06 Working Paper http://documents.worldbank.org/curated/en/795411624476995767/Carbon-Tax-in-an-Economy-with-Informality-A-Computable-General-Equilibrium-Analysis-for-Cote-d-Ivoire http://hdl.handle.net/10986/35830 English Policy Research Working Paper;No. 9710 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Africa Western and Central (AFW) Cote d'Ivoire |
| repository_type |
Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English |
| topic |
CARBON TAX INFORMALITY INFORMAL ECONOMY GENERAL EQUILIBRIUM MODEL GREENHOUSE GAS EMISSIONS TAXATION TAX REVENUE |
| spellingShingle |
CARBON TAX INFORMALITY INFORMAL ECONOMY GENERAL EQUILIBRIUM MODEL GREENHOUSE GAS EMISSIONS TAXATION TAX REVENUE Timilsina, Govinda Dissou, Yazid Toman, Mike Heine, Dirk Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire |
| geographic_facet |
Africa Africa Western and Central (AFW) Cote d'Ivoire |
| relation |
Policy Research Working Paper;No. 9710 |
| description |
In an economy with substantial
informality, a carbon tax can produce fiscal co-benefits
that improve economic performance in addition to reducing
carbon dioxide emissions. If the carbon tax revenues are
used to cut production or labor taxes on formal firms,
particularly those not in the energy sector, the cost of
imposing the carbon tax is reduced, and there may even be
net economic benefits. These tax cuts can also provide an
incentive for informal firms to move to formal parts of the
economy. This study confirms these hypotheses using a
computable general equilibrium model for Côte d’Ivoire.
However, the scale and even the sign of overall economic
impacts and formal-informal sectoral interactions are
sensitive to the scheme and scale of revenue recycling. The
largest fiscal co-benefits, in terms of gross domestic
product and economic welfare gains, would occur when the
entire carbon tax revenue, after keeping the government
revenue neutral, is used to cut existing labor or production
taxes for non-energy formal firms. Reducing the existing
value-added tax also increases gross domestic product and
economic welfare, but without reducing the informality. The
study also shows that energy producers should be exempted
from using the carbon tax revenues to cut their production
or labor taxes; otherwise, carbon dioxide reduction
decreases due to a rebound effect. Although a carbon tax
with lump-sum transfers of revenues is progressive, it would
be economically inefficient because of gross domestic
product and welfare reduction and lack of incentives to
encourage informal activities to move to the formal parts of
the economy. |
| format |
Working Paper |
| author |
Timilsina, Govinda Dissou, Yazid Toman, Mike Heine, Dirk |
| author_facet |
Timilsina, Govinda Dissou, Yazid Toman, Mike Heine, Dirk |
| author_sort |
Timilsina, Govinda |
| title |
Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire |
| title_short |
Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire |
| title_full |
Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire |
| title_fullStr |
Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire |
| title_full_unstemmed |
Carbon Tax in an Economy with Informality : A Computable General Equilibrium Analysis for Cote d’Ivoire |
| title_sort |
carbon tax in an economy with informality : a computable general equilibrium analysis for cote d’ivoire |
| publisher |
World Bank, Washington, DC |
| publishDate |
2021 |
| url |
http://documents.worldbank.org/curated/en/795411624476995767/Carbon-Tax-in-an-Economy-with-Informality-A-Computable-General-Equilibrium-Analysis-for-Cote-d-Ivoire http://hdl.handle.net/10986/35830 |
| _version_ |
1764483864520032256 |