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

34 Pages Posted: 19 Nov 2008

See all articles by Maria Berrittella

Maria Berrittella

affiliation not provided to SSRN

Katrin Rehdanz

University of Kiel; University of Hamburg - Centre for Marine and Climate Research (ZMK); Kiel Institute for the World Economy

Roberto Roson

Ca Foscari University of Venice - Dipartimento di Economia; Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy; Loyola Andalucia University

Richard S. J. Tol

The Economic and Social Research Institute, Dublin; Institute for Environmental Studies, Free University Amsterdam

Date Written: Jan 2006

Abstract

Water is scarce in many countries. One instrument to improve 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 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 in 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.

Keywords: Computable General Equilibrium, Virtual Water, Water Allocation, Water Pricing, Water Scarcity

JEL Classification: D58, Q25, Q2

Suggested Citation

Berrittella, Maria and Rehdanz, Katrin and Roson, Roberto and Tol, Richard S. J., The Economic Impact of Water Taxes: A Computable General Equilibrium Analysis with an International Data Set (Jan 2006). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 05/08. Available at SSRN: https://ssrn.com/abstract=1105000 or http://dx.doi.org/10.2139/ssrn.1105000

Maria Berrittella (Contact Author)

affiliation not provided to SSRN

Katrin Rehdanz

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

University of Hamburg - Centre for Marine and Climate Research (ZMK) ( email )

Troplowitzstrasse 7
D-22529 Hamburg
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
Germany

Roberto Roson

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy
+39 041 2349147 (Phone)
+39 041 2349176 (Fax)

HOME PAGE: http://venus.unive.it/roson

Bocconi University - IEFE Centre for Research on Energy and Environmental Economics and Policy ( email )

viale Filippetti, 9
Milan, 20122
Italy

Loyola Andalucia University ( email )

Escritor Castilla Aguayo no. 4
Cordoba, CORDOBA 14004
Spain

Richard S. J. Tol

The Economic and Social Research Institute, Dublin ( email )

Whitaker Square
Sir John Rogerson's Quay
Dublin 2
United States

HOME PAGE: http://www.esri.ie

Institute for Environmental Studies, Free University Amsterdam ( email )

De Boelelaan 1115
Amsterdam, 1081 HV
Netherlands

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