Ecological deficit tax: A tax design and simulation of compensation for ecosystem service value based on ecological footprint in China

Abstract

The expansion of resource tax to the occupation of natural ecological space is an important part of China's tax reform. This paper quantifies the occupation of natural ecological space based on the demand for energy, water, and agriculture resources in terms of an ecological footprint, and creatively convert the carbon emissions from energy consumption to occupation of carbon sinks such as woodlands and grasslands, to obtain the ecological deficits in various regions of China. Based on the evaluation of the ecological service value, the paper determines the correspondence between consumption projects, land types and ecological functions, realized the accounting of the economic value of the national ecological deficit as the sum of the regional deficits. Based on this, the ecological deficit is used as an unpaid input factor in the construction of a green Social Accounting Matrix table, and a recursive dynamic Computable General Equilibrium model is used to analyze the effects of a tax policy on the compensation for the ecological deficit value. The simulation results show that the double-dividend hypothesis exists in the primary and tertiary industries, and employment in the secondary industry that with a high value-added labor decreased, resulting in decreases in both the labor income of residents and their proportion of the national income. The growth rate of GDP decreases in the short term and then gradually increases. Capital appreciation and net exports contribute greatly to economic growth. Based on the positive role of taxation schemes in reducing ecological deficits and their negative impacts on economic growth and the income distribution, this paper suggests that, with the improvement of big data on ecological occupation, an ecological deficit tax can be introduced to target the energy sector, which has a large ecological footprint. In addition, household income should be protected through tax cuts, transfer payments, and earmarked funds, among other means, to promote economic growth and protect the environment.