CGE modeling: alternative structural specifications for the evaluation of carbon taxes. Simulations for economies of Latin America and the Caribbean.

Abstract

The aim of this study is to construct the framework of a small computable general equilibrium model with applications to climate change, to evaluate the impact of carbon taxes on GDP and emissions, and to study the sensitivity of those results under alternative closure rules and hypothesis (about mobility of factors, availability of alternative technologies and labor market disequilibrium). The model is simulated for Argentina, Brazil, Chile, El Salvador, Jamaica and Peru. We find that there are differences in the estimates of costs of lower emissions between short run models with unemployment and models that assume full employment. Those costs depend too on the rules of adjustment of wages and on the mobility of resources. Equal-yield corrections of taxes help to reduce costs and can even produce a net benefit. The presence of alternative technologies is relevant to reduce emissions at low cost. However their effective use depends on the stress they put on scarce resources.