Abstract
This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Algerian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using an Algerian social accounting matrix. The carbon tax policy illustrates that a 1.52 % reduction of carbon emission reduces the nominal GDP by 1.26 % and exports by 3.04 %; a 2.67 % reduction of carbon emission reduces the nominal GDP by 1.92 % and exports by 4.86 %; and a 3.72 % reduction of carbon emission reduces the nominal GDP by 3.79 % and exports by 6.90 %. Imposition of successively higher carbon tax results in increased government revenue from the baseline by 23.68, 50.18, and 76.38 %, respectively. However, fixed capital investment increased in scenario 1a (first) by 0.23 % but decreased in scenarios 1b (second) and 1c (third) by 0.35 and 2.03 %, respectively, from the baseline. According to our findings, policy makers should consider initial (first) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP, and government revenue.
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Notes
- 1.
Compared with other modeling techniques, such as the input–output approach or linear programming, the CGE approach has appealing features for modeling environmental policy analysis. This modeling approach can consider simultaneously environmental policy analysis and welfare effects of trade and trade policies. A prominent advantage of CGE models lies in the possibility of combining detailed and consistent real-world database (social accounting matrix) of trade and environment with a theoretically and empirically sound framework (Perroni and Wigle 1994).
- 2.
SAM is estimated by the authors using the Algerian 2009 input–output table and national accounts Algeria 2009.
- 3.
The production function here is nested. At the top level, output is a fixed coefficient function of real-world value-added and intermediate inputs. Real value-added is a Cobb–Douglas function of capital and labor. Intermediate inputs are required according to fixed input–output coefficients, and each intermediate input is a CES aggregation of imported and domestic goods.
- 4.
It is assumed that emission is a linear function of outputs throughout this paper.
- 5.
The carbon tax also falls of domestic production, exports, value added, real GDP, tariff revenue, export tax revenue, enterprise tax, household tax, and enterprise savings.
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Mohammed, T. (2017). A CGE Analysis of the Macroeconomic Effects of Carbon Dioxide Emission Reduction on the Algerian Economy. In: Tsounis, N., Vlachvei, A. (eds) Advances in Applied Economic Research. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-48454-9_1
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