Carbon tax in production networks
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2022-03-29
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Ferreira, Pedro Cavalcanti Gomes
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In this paper we use a multi-sector equilibrium model with intersectoral input–output linkages and CO2 emissions to investigate the economic impacts of the implementation of a carbon taxation policy in an economy permeated by pre-existing distorting taxes. The model is calibrated for Brazil’s economy and results for four alternative designs of policy are simulated. In the presence of production networks, the initially concentrated tax shocks propagate throughout the economy,provoking widespread relative input price variations. Our results show that, for a 45% cut in CO2 steaming from energy consumption, GDP losses range between 3.54% and 0.66%, depending on the policy design and on how the increase in tax revenues is rebated back to the economy by the government. We also show that sectors are heterogeneously affected. In general, those more reliant on taxed pollutant resources suffer sizable decreases in production. In contrast, effects on the production of services sectors range from negligible to positive.