The effect of water tax on Chinese economy and environment: a computable general equilibrium analysis

Water is scarce in China and the water pollution problem is increasingly severe, which exacerbate s its water scarcity. Some studies have proved that pricing or taxing is one of the efficient instrument to improve the allocation of a scarce resource, but few studies give a quantitative analysis on what the actual impact of water tax policy on the sectors and the national economy as a whole. This paper aims to evaluate a series of water tax policies in China based on an extended multi-region, multi-sector computable general equilibrium model (MCHUGE-WATER), including water as a production factor and assuming every sector produces two products, one is the commodity , the other is the wastewater. It is anticipated to find that water tax on the water resources will reduce water use, increase the cost of the producers and lead to shifts in the stucture of production and consumption.Taxes on the pollutant in wastewater will drive less economic and welfare impacts but have a positive effect on environment.Taxes on agricultural water use dive substantial economic and welfare impacts.A water tax on final consumption will procuce more welfare gains.