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Will a carbon tax hinder China’s efforts to improve its primary income distribution status?

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Mitigation and Adaptation Strategies for Global Change Aims and scope Submit manuscript

Abstract

Global climate change has become a considerable threat and has raised widespread concern. The carbon (C) tax is a significant policy option for China to address climate change. However, China is also facing pressing domestic issues, such as the severe income disparity of the primary distribution, which have to be considered when introducing a C tax. Employing a recursive dynamic computable general equilibrium model and considering three labor market scenarios, this study aims to assess the impacts of taxing C on China’s primary income distribution from an economy-wide perspective. The results indicate that taxing C would reduce labor remuneration and its share of the primary distribution, with capital income and its share also decreasing, while net product tax and its share would increase, indicating that taxing C would further deteriorate China’s current primary income distribution status and damage both households and enterprises, while the government would benefit the most. However, in the long run, a low C tax will not strongly exacerbate the inequity in the primary income distribution. The results also indicate that the C tax would perform differently under different labor market scenarios, as well as under different critical elasticity values, which indicates that the complex features of China’s labor market and the development of production technology during the transition period should be taken into consideration when introducing a C tax. Moreover, all scenarios could clearly reduce carbon dioxide (CO2) emissions, with the reduction under the labor-surplus scenario being more obvious.

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Notes

  1. In this study, capital income is the sum of depreciation of fixed assets and operating surplus.

  2. labor’s share in this study refers to the ratio of labor remuneration to GDP (national income).

  3. The primary income distribution status in this study includes both the pattern and level of the primary income distribution, where the pattern refers to the share of each component in the national income and the level refers to their income scale. In short, the primary income distribution status refers to the degree of equity and efficiency in the primary income distribution.

  4. A glossary of the economic terms used in this paper, particularly in the methodology, has been provided in the appendix (see Table A.1) to help readers better understand this work.

  5. The basic C tax scheme means taxing C with no tax incentive and all tax revenue is assigned to the government budget.

  6. The range of C tax rates used here is meant to cover the range of rates that have been seriously proposed for implementation either now or in the near future. Regarding RMB, the current conversion rate to US dollars is 0.1653.

  7. Each simulation scenario has a corresponding baseline scenario in our model, but these baseline scenarios are completely consistent.

  8. As with the items mentioned above, labor’s share, capital’s share and NPT’s share in this section still refer to the ratio of labor remuneration, capital income and net product tax to national income (GDP), respectively.

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Acknowledgments

The authors gratefully acknowledge financial support from the National Natural Science Foundation of China under Grant No. 71001007 and the Program for New Century Excellent Talents in University under Grant No. NCET-12-0039. We also thank two anonymous referees for the helpful comments and all of the members from CEEP for providing data and suggestions herein.

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Authors and Affiliations

  1. Centre for Energy and Environmental Policy Research, Beijing Institute of Technology, 5 South Zhongguancun Street, Haidian District, Beijing, 100081, China

    Qian Wang & Qiao-Mei Liang

  2. School of Management and Economics, Beijing Institute of Technology, Beijing, 100081, China

    Qian Wang & Qiao-Mei Liang

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  1. Qian Wang
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  2. Qiao-Mei Liang
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Correspondence to Qiao-Mei Liang.

Appendix

Appendix

Table 4 Glossary of economic terms
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Wang, Q., Liang, QM. Will a carbon tax hinder China’s efforts to improve its primary income distribution status?. Mitig Adapt Strateg Glob Change 20, 1407–1436 (2015). https://doi.org/10.1007/s11027-014-9553-8

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