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This paper examines the effectiveness of carbon taxes on macroeconomic performance when manufacturing firms have the opportunity to change their scale of operation and degree of formality. The hypothesis is that when tax evasion or elusion is possible, it cannot be ruled out that emissions increase rather than decrease due to the reallocation of resources from the rest of manufacturing towards informal small-scale firms. When informality is high, industry could adapt to carbon taxes by reducing the scale of operation of big firms and increasing the number of small firms. However, when taxes are enforceable in all types of firms, there is a cost in terms of GDP and employment, since small-scale firms are more labor intensive. For numerical experiments, two CGE models calibrated for Argentina and Mexico are used. The “domestic leakage” is found to be more relevant for Argentina than for Mexico.
Climate change mitigation policies have begun to be discussed in Latin American and Caribbean (LAC) countries in recent years. However, the economic effects of such policies—i.e., winners and losers—may vary significantly across countries. This paper attempts to shed light on some of these differences for a set of five LAC countries that may in the future adopt or be forced to accept some form of ... (View publication)
This issue of IDEA covers some of the IDB’s recent research on climate change, including efforts on both the mitigation and adaptation fronts. That research includes both surprising findings and an underlying understanding that the region’s development must take into account -and will in many ways be shaped by- how it deals with this unique and inescapable issue. (View publication)
The general objective of this study is to review the international literature and best practices to develop a methodological framework capable of quantifying the increase in investments necessary for a traditional standard of living in a world subject to climate change. This methodology is then applied to two case studies: Bolivia and Chile. In particular, the document addresses the economics of a ... (View publication)
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