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  • Volume 10, Issue 3

The economic impact of water taxes: a computable general equilibrium analysis with an international data set

Maria Berrittella, Katrin Rehdanz, Roberto Roson, Richard S. J. Tol
Published June 2008, 10 (3) 259-271; DOI: 10.2166/wp.2008.003
Maria Berrittella
Centro Interdipartimentale di Ricerche sulla Programmazione Informatica dell'Economia e delle Tecnologie (CIRPIET), University of Palermo, Viale delle Scienze, 90128, Palermo, Italy
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Katrin Rehdanz
Research Unit Sustainability and Global Change, Hamburg University and Centre for Marine and Atmospheric Science, Bundesstrasse 55 (Pavilion), 20146, Hamburg, Germany. Tel: +49 40 42838-7047 Fax: +49 40 42838-7009Corresponding author E-mail: katrin.rehdanz@zmaw.de
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Roberto Roson
Department of Economics, University Ca’ Foscari, Cannaregio S. Giobbe 873, 30121, Venice, ItalyFondazione Eni Enrico Mattei, Venice, Italy
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Richard S. J. Tol
Research Unit Sustainability and Global Change, Hamburg University and Centre for Marine and Atmospheric Science, Bundesstrasse 55 (Pavilion), 20146, Hamburg, Germany. Tel: +49 40 42838-7047 Fax: +49 40 42838-7009Economic and Social Research Institute, Dublin, IrelandInstitute for Environmental Studies, Vrije Universiteit, Amsterdam, The NetherlandsEngineering and Public Policy, Carnegie Mellon University, Pittsburgh, PA, USA
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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.

  • Computable general equilibrium
  • Virtual water
  • Water allocation
  • Water pricing
  • Water scarcity
  • Received December 16, 2005.
  • Accepted February 4, 2008.
  • © IWA Publishing 2008

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Water Policy: 20 (2)
  Volume 10, Issue 3

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The economic impact of water taxes: a computable general equilibrium analysis with an international data set
Maria Berrittella, Katrin Rehdanz, Roberto Roson, Richard S. J. Tol
Water Policy Jun 2008, 10 (3) 259-271; DOI: 10.2166/wp.2008.003
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The economic impact of water taxes: a computable general equilibrium analysis with an international data set
Maria Berrittella, Katrin Rehdanz, Roberto Roson, Richard S. J. Tol
Water Policy Jun 2008, 10 (3) 259-271; DOI: 10.2166/wp.2008.003

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Keywords

Computable general equilibrium
Virtual water
Water allocation
Water pricing
Water scarcity
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