Economic and Environmental Effects of Resource Tax Reform in China: A Computable General Equilibrium

Abstract

In order to lower carbon emission at a national scale, coal resource tax reform from quantity-based collection to ad valorem collection has been taken by Chinese government in December 2014. To research the economic and environmental impacts from the policy reform, this paper extends a multi-sectoral computable general equilibrium (CGE) model and GAMS are used to solve for the equilibrium. Two scenarios are designed, quantity-based collection and ad valorem collection with different tax rate, within the CGE model. By comparing results from the resource tax reform, some conclusions could be captured. The first conclusion is that there is a negative relationship existing between gross domestic product of China and the higher tax rate due to the decreasing of output and the total output for each industry would decline obviously. The second conclusion is from the environmental aspect. With the higher resource tax burden, the total resource demand would decrease, as a result, the structure of energy would be improved largely. The total carbon emissions, as well as other air pollutants would be decreased. In conclusion, the benefits brought by the tax reform would reach the China's goal for carbon emission reduction.