The Economic Impact of Water Taxes: A Computable General Equilibrium Analysis with an International Data Set

Berrittella, Maria, Rehdanz, Katrin, Roson, Roberto and Tol, Richard S J (2008) The Economic Impact of Water Taxes: A Computable General Equilibrium Analysis with an International Data Set. Water Policy, 10 (3). pp. 259-271. ISSN 1366-7017

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Abstract

Water is scarce in many countries. One instrument for improving the allocation of a scarce resource is (efficient) pricing or taxation. However, water is implicitly traded on international markets, particularly through food and textiles, so that the impacts of water taxes cannot be studied in isolation, but require an analysis of international trade implications. We include water as a production factor in a multi-region, multi-sector computable general equilibrium model (GTAP), to assess a series of water tax policies. We find that water taxes reduce water use and lead to shifts in production, consumption and international trade patterns. Countries that do not levy water taxes are nonetheless affected by other countries' taxes. Taxes on agricultural water use drive most of the economic and welfare impacts. Reductions in water use (welfare losses) are less (more) than linear with the price of water. The results are sensitive to the assumed ability to substitute other production factors for water. A water tax on production would have different effects on water use, production and trade patterns and the size and distribution of welfare losses than would a water tax on final consumption. © IWA Publishing 2008.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences > GE300 Environmental management
H Social Sciences > HB Economic theory. Demography
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Depositing User: Richard Tol
Date Deposited: 17 Apr 2012 11:20
Last Modified: 30 Nov 2012 17:11
URI: http://sro.sussex.ac.uk/id/eprint/38294
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