Input-output Price Model Research Articles

Environmental and economic impact analysis of levying VOCs environmental protection tax in China

China is one of the largest volatile organic compounds (VOCs) emitters worldwide. The emission levels of and harm caused by VOCs have attracted much attention. China has implemented multiple policies for VOCs prevention and control but lacks economic control measures for VOCs In this study, the input-output (IO) price model was used to simulate and analyze the emission reduction and economic effects resulting from the imposition of a VOCs environmental protection tax (EPT) in 31 provinces in China. The results show that, first, the collection of a VOCs-EPT can achieve not only VOCs emission reductions but also the synergistic emission reductions of other major pollutants. Second, the collection of a VOCs-EPT could have a negative impact on the macroeconomy, i.e., the greater the tax scope and the higher the tax rate are, the greater the negative economic impact. Third, differences in the level of economic development, the structure of pollution emissions and the stringency of tax policies among regions would cause the emission reduction effect and related negative economic impact to vary across regions. Finally, the collection of a VOCs-EPT could have heterogeneous impacts on various industries, as high-emission industries would suffer greater negative impacts. Therefore, each region should set tax rates that match its provincial economic and environmental development levels. Furthermore, a VOCs-EPT can be levied on key industries, and reasonable preferential tax policies can be formulated to reduce negative macroeconomic benefits.

Who is most affected by carbon tax? Evidence from Chinese residents in the context of aging

Previous research on the distributional effects of carbon tax has primarily focused on different income groups, with less examination of different age groups. Nevertheless, significant differences in the effect of carbon tax are expected for different age groups, particularly for the vulnerable elderly. Based on detailed data regarding the consumption patterns, this study first investigates direct and indirect emissions for different age groups of residents. And then we analyze the distributional effects of carbon tax on residents of different ages and income groups using an input–output price model. The results show that the indirect carbon payment burden rate on the elderly (i.e., the proportion of carbon tax expenditure in total expenditure) is 1.2 times that of the general population. The combined impact of income and age on comprehensive indirect carbon payment rates is estimated to be 1.4 times that of the general people, showing that the carbon tax exacerbates the energy poverty of low-income seniors to a greater extent. In addition, supportive measures can effectively reduce the carbon tax cost burden of the elderly and low-income residents. Even if the carbon tax is levied more vigorously, it can still enhance the ability of vulnerable groups to overcome negative energy shocks.

Simulation study on the effect of differentiated carbon tax adjustment on CO2 emissions reduction in China from the perspective of carbon footprint

The carbon tax is an efficient environmental and economic method for lowering CO2 emissions, and effective carbon taxes should not only aim to reduce CO2 emissions but also consider their impact on socio-economic and resource utilization. The carbon footprint reflects actual carbon emissions and trade connections between sectors, providing a reference for levying carbon taxes on different sectors and examining their impact on the economy. This study utilizes the 2017 non-competitive input-output table of China and CO2 emissions and water consumption data from 27 sectors. Firstly, the research calculates carbon and water footprints of each sector through input-output analysis. Then, utilizing the input-output price model, the article compares the effect of differentiated carbon taxes on CO2 emissions and GDP across sectors in China, examining both direct carbon emissions and carbon footprint. Lastly, the survey constructs a carbon tax optimization model, aiming to maximize carbon and water footprint reduction while minimizing reduction in labor compensation. The key findings are: (1) Different sectors display varying characteristics in terms of direct carbon emissions and carbon footprints. 19 sectors exhibit higher direct carbon emissions than carbon footprints, while 8 sectors show the opposite. (2) Implementing carbon taxes on all sectors in China based on direct carbon emissions and carbon footprints effectively reduces CO2 emissions. However, at the same tax revenue, a reduction of 10^4 yuan in GDP leads to a further decrease of 0.47 × 10^6 tons of CO2 emissions from the carbon footprint perspective compared to direct carbon emissions. (3) In the optimal differentiated carbon tax plan based on carbon footprints, water production sector bears the highest carbon tax at 5.45 yuan/ton, while electricity production sector bears the lowest at 0.1 yuan/ton. This plan declines CO2 emissions by 7.82% and water consumption by 6.21%, but also results in a 0.02% decrease in GDP. The research findings recommend that sectoral differentiated carbon taxes consider economic development and resource impacts. Implementing refund policies to compensate for the economic losses caused by carbon taxes is essential, while also conserving resources and reducing CO2 emissions. These recommendations provide valuable guidance for the future introduction and implementation of differentiated carbon tax policies.

Hungary's inflationary exposures to global price movements

AbstractThis paper investigates Hungary's inflationary exposures to global price movements using a simple cost-push input-output price model and a database of inflation-to-output price elasticities (Global Inflation-to-Output Price Elasticity Database, GIOPED) developed on the basis of the OECD's Inter-Country Input-Output Tables. Inflation elasticities are decomposed into local, simple, and complex global value chain effects by applying Wang's decomposition scheme (Wang et al. 2017) to price movements and inflation. Our empirical analysis based on GIOPED elasticities shows that Hungary is highly exposed to global value chain price transmissions originating in Germany, Austria, and Russia; and in particular to changes in energy prices. The crude oil and natural gas price boom and the resulting energy crises caused a significant increase in consumer price levels in Hungary; however, this explains only a fraction of current inflation rates.

Energy price shocks induced by the Russia-Ukraine conflict jeopardize wellbeing

The significant spike in global energy prices induced by the Russian-Ukrainian (RU) conflict is perceived as highly uncertain that may rise household living costs and adversely affect Sustainable Development Goals such as poverty elimination. However, the impacts on human wellbeing are entirely obscured by conventional economic analyses. Using the input-output price model and a human needs framework, we assess the impact of energy price shocks caused by the RU conflict on eight dimensions of human needs in 49 countries/regions. Our findings show that the non-material dimension Creation and the material dimension Protection are the most affected human needs globally, with declines of 3.7%–8.5% and 3.6%–8.4%, respectively. Households in BRICS countries are hit hardest on these human needs (2.0-2.2 times the global average) owing to higher price increases and higher energy-dependent consumption patterns. The human need satisfaction of low-income groups is not only severely affected, but also the poorer the country in which they reside, the more serious the decline of their satisfaction, while there is no such problem for higher income groups. Our findings underscore the need to consider both material and frequently overlooked non-material dimensions of wellbeing when designing targeted policies to protect the vulnerable from energy price shocks.

Impact of carbon tariffs on price competitiveness in the era of global value chain

More and more countries are joining the discussion on climate mitigation through a range of emissions reduction policies such as carbon pricing. However, differences in carbon prices and policy intensity have led countries to worry about issues such as unilateral competitiveness loss and carbon leakage, and carbon border adjustment mechanisms have emerged. This paper analyzes the impact of carbon border adjustment on price competitiveness with the carbon tariff system to be implemented by the EU and the US. First, we obtain the cost pass-through rates of 14 regions-3 sectors through the panel regression of error correction model, and corrects the input–output price model for incomplete cost transmission. Combined with global inter-industry linkages, the impact of carbon tariff levy on the real effective exchange rate, the main indicator of price competitiveness of each region and industry, is examined for the EU CBAM and the US Clean Competition Act. On this basis, we use the effective rate of protection which is adjusted with global value chain, to analyze the positive effect of carbon tariff policy on domestic producers. Finally, the welfare effects of residential households are estimated, after quantity adjustment using the real effective exchange rate. The results show that when only direct carbon tariffs are analyzed, the impact of the US Clean Competition Act is greater than that of the EU CBAM for Australia and Canada, and for Japan and other regions, the sanctioning effect of the EU CBAM is more significant. When considering the impact of cumulative tariffs in the upstream, the output prices of countries further increase, and the cumulative carbon tariffs of the US under the two scenarios are as high as 0.61 % and 0.81 %. According to the results of the real effective exchange rate, the price competitiveness of the US and Russia decreases. The effective rate of carbon tariff protection is negative in all countries except for the implementers of carbon tariffs - the US and the EU, which means that the producers lose value added due to carbon tariffs. Finally, the welfare effects analysis shows that the two largest causes of welfare losses are the increase in domestic prices and the prices of imported goods from the US.

The Effects of Rising Energy Prices on Inflation in Croatia

The estimation of the price change effects caused by the impact of external shocks on the national economy is extremely important. The aim of this paper is to estimate the effect of the increasing global energy prices on the stability of the Croatian economy. The effects of the increase in energy prices are compared with other exogenous shocks, i.e., with the effects of the increasing gross wages and salaries and the increasing prices of imported goods and services. The impact of the changes in the prices of primary inputs on the trends in the economic sector prices was quantified using the input–output price model. The intensity of the transmission of the change in price of a primary input to other sectors through intersectoral dependence was analyzed. The results of the analysis indicate that the Croatian economy is extremely sensitive to energy price shocks. The estimated effects of increases in the prices of certain primary inputs, especially energy, on various economic sectors and on the overall economy are particularly significant when considering situations in which Croatia adopts the EUR, and when the price increases could affect the stability and successful completion of that process.

Effects of Carbon Tax on Urban Carbon Emission Reduction: Evidence in China Environmental Governance.

Carbon tax is an important economic instrument in achieving the goal of carbon emission reduction and sustainable development. This paper investigates the effects of carbon tax on carbon emission reduction in China. First, a non-competitive input-output table for Carbon Emissions of 28 sectors in China after Carbon Tax was established, based on the "2018 China Non-competitive Input-Output Table (42 Sectors)" and the carbon emission data of sectors provided by China Carbon Emission Accounts and Datasets (CEADs). Then, an input-output price model was established to study the changes on product price, GDP, employment, and carbon dioxide emissions of 28 sectors after carbon taxing ranged from 10 to 200. When the carbon tax rate reaches 200 yuan/ton, the inflation rate will be 5.907%, the total GDP will be decreased to 1.910%, the total labor force will be decreased to 1.744%, and the total carbon emission reduction rate will be increased to 8.171%. Results showed that with the increases in carbon tax, the inflation rate was increased, the rate of carbon emission reduction was increased, and the negative effects on GDP and employment were also increased. Suggestions on policy making, such as combination of carbon taxing and carbon trading, dynamic adjustment mechanism, tax neutrality, and forcing active carbon reduction, were proposed to minimize the adverse effect of levying carbon tax. The results from this paper would provide a reference for the policy making on carbon management.

Price re-interpretations of the basic IO quantity models result in the ultimate input-output equations

This note shows that Leontief's well-known demand-driven input–output (IO) quantity model may also be interpreted as the almost unknown revenue-pull IO price model, but measured in value terms instead of in prices. It is also shown how these two demand-driven models may be combined into a single ultimate demand-driven IO equation. An analogous result holds for the supply-driven quantity model and the cost-push price model, which results in a single ultimate supply-driven IO equation. The new price interpretation of the Leontief quantity model opens up hitherto unused possibilities to simulate interindustry demand-driven inflation processes, just as the price interpretation of the Ghosh quantity model enables simulations of supply-driven inflation processes.

Hydrogen-based steel production and global climate protection: An empirical analysis of the potential role of a European cross border adjustment mechanism

The European Union's aim to become climate neutral by 2050 necessitates ambitious efforts to reduce carbon emissions. Large reductions can be attained particularly in energy intensive sectors like iron and steel. In order to prevent the relocation of such industries outside the EU in the course of tightening environmental regulations, the establishment of a climate club jointly with other large emitters and alternatively the unilateral implementation of an international cross-border carbon tax mechanism are proposed. This article focuses on the latter option choosing the steel sector as an example. In particular, we investigate the financial conditions under which a European cross border mechanism is capable to protect hydrogen-based steel production routes employed in Europe against more polluting competition from abroad. By using a floor price model, we assess the competitiveness of different steel production routes in selected countries. We evaluate the climate friendliness of steel production on the basis of specific GHG emissions. In addition, we utilize an input-output price model. It enables us to assess impacts of rising cost of steel production on commodities using steel as intermediates. Our results raise concerns that a cross-border tax mechanism will not suffice to bring about competitiveness of hydrogen-based steel production in Europe because the cost tends to remain higher than the cost of steel production in e.g. China. Steel is a classic example for a good used mainly as intermediate for other products. Therefore, a cross-border tax mechanism for steel will increase the price of products produced in the EU that require steel as an input. This can in turn adversely affect competitiveness of these sectors. Hence, the effects of higher steel costs on European exports should be borne in mind and could require the cross-border adjustment mechanism to also subsidize exports.

The Distribution Effects of a Carbon Tax on Urban and Rural Households in China

Carbon tax is an important carbon emission mitigation tool and has been widely recognized as an efficient mechanism for slowing down global warming. The imposition of a carbon tax will, however, inevitably affect income distribution, as a household’s income level influences its priorities regarding consuming the affected goods. This will have important implications for the government, which will have to formulate policies that can achieve efficiency as well as equity. In this study, we apply the input–output price model to estimate the distribution effects of a carbon tax for urban as well as rural areas in China. Our results show that the price increases due to carbon taxes affect rural areas more than urban areas. The Suits index in rural areas is −0.1928, while the value in urban areas is −0.0588. This indicates carbon tax is regressive in all areas, especially the rural ones, and there is a need to formulate suitable policy measures to alleviate a possible widening income gap among income groups and between urban and rural areas.

Applying the input\u2013output price model to identify inflation processes

We try to examine the potential of input–output price model to identify mechanisms of price formation and transmission. Contrary to previous research that focused on overcoming the specific limitations of the model, we test its overall performance. In the presented study, the historical values of the commonly used consumer price index were decomposed according to the classic input–output price model for an open economy. A sequence of ex post simulations under various assumptions was used to identify the sources of inflation. This study required the use of input–output tables in current and previous year’s prices. The proposed method of decomposition might be a starting point to create a framework for studying different aspects of inflation process.

A hybrid instrument for China's post-2020 mitigation commitments: A sectoral coverage perspective

Sectoral coverage is a chief challenge in the design of carbon mitigation policies, this paper addresses such a concern within a hybrid regulation setting in which a carbon tax is adopted for complementary regulation of emission sources outside the Emission Trading System (ETS) in China. With a focus on the efficiency of the hybrid system, the regulated sectors are identified by linkage analysis and the resulting price changes is captured by the input-output (I-O) price model. The simulation shows that, in terms of the price incentives, the proposed carbon tax is a necessary complement to the ETS, in respect of both magnitude and structure. As a result, a mixed policy setting can be expected to have an efficiency advantage over the ETS alone. Understanding of the joint determination of the sectoral coverage and the corresponding price incentive effect is a new contribution to the theoretical literature on designing market-based carbon policies, which has substantial policy implication for the future design of instruments targeted at achieving China’s post-2020 mitigation commitments.

Pandemic and cost inflation in Peru

This article proposes to analyze the two most urgent problems in Peru today: the pandemic and cost-push inflation. A first conclusion is to recognize that the Covid-19 pandemic has not ended, neither globally nor in Peru. Experts predict that the third wave will arrive in Peru with the new Delta variant in late 2021. It is crucial to contain contagions without affecting reactivation of the economy. The methodology used is the input-output price model. In relation to exchange-rate cost-impacts, the conclusion is that the expected impact of a devaluation of the new sol is estimated as an impact on Consumer Price Index. The impacts are in the range of 7% to 22% or to 36%, depending on the degree of the assumed devaluation being low, intermediate, or extreme. A third conclusion of the analysis relates to increases in the prices of strategic commodities. As an example, the 92% increase in the world price of crude oil has an aggregate effect equal to 6.2% increase in the CPI of the Peruvian economy, after all forward linkages of crude oil, on gasoline and other fuels are reflected. Note that other international commodity prices have also increased in world markets -such as corn, soybeans, and grains- although they are not included in this analysis.

A flexible input-output price model for assessment of a nexus perspective to energy, water, food security policymaking

Input-Output models and their extensions offer multiple prospects to explore the energy, water, food inter-linkages – Energy, Water, Food nexus (EWF-n). This paper takes India as a case study to examine a nexus-informed approach to policy making for redressing the EWF security (EWF-s) challenges. First, a Leontief demand-driven EWF-extended Input-Output model is developed. The Leontief's production functions (representing endogenous, fixed technical coefficients) of the developed model are then further modified using flexible functions to capture EWF-related technological and policy interventions. The resulting changes in the model (to include divergent input substitution possibilities) allow evaluation of policy scenarios with nexus or non-nexus considerations towards EWF-s. These scenarios assess outcomes across diverse domains (physical, social, economic, environmental) in short, medium, and long-run over the period 2015-2047. The results show that not only does the EWF nexus-oriented scenario produce major co-benefits demonstrated in terms of the most significant long-term improvement in EWF outcomes but that it also achieves considerably superior economic, social, and environmental outcomes. Synergies and trade-offs across various policy scenarios are also discussed. The insights obtained from the application of this approach, especially cross-sectorial (EWF), cross-domain, and temporal can provide promising takeaways for policymakers to adopt a robust and sustainable strategy for tackling the EWF-s challenges.

Exchange Rate Pass-through in China: A Cost-Push Input-Output Price Model

Relying on a cost-push input-output model for China, we estimate the exchange rate pass-through to both domestic prices and export prices at the industry level. Our empirical results indicate that the decline of the RMB price in the processing exports sector in response to an RMB appreciation is larger than that in the non-processing exports sector, which, in turn, is larger than the decline of the consumer price indexes. Our cross-sector analysis also suggests that exchange rate changes have the lowest impact on prices in capital- and technology-insensitive industries.

Distributional impacts of gasoline supply constrained in Iran: application of input-output mixed price model

Iran has always been the importer of gasoline over the last decade and international sanctions have made imports of this commodity potentially constraint. This condition as a supply constraint can damage the production of other economic sectors through rising in production prices and changing Iranian household welfare. Thus, a key question in this regard is how Iranian household expenditures will be affected in different consumer groups if the gasoline supply is constrained. To answer this question, the mixed-variable input-output price model and a symmetric Iran 38 × 38 input-output table for the year 2005 were employed. The results showed that most of the poor urban groups, especially the first eight groups, show a high sensitivity to the rise in gasoline prices and reduction in their overall expenditures. Nevertheless, rural households, unlike urban households, are heavily dependent on gasoline consumption, and do not reduce their expenditures in response to price changes.

Distributional impacts of gasoline supply constrained in Iran: application of input-output mixed price model

Iran has always been the importer of gasoline over the last decade and international sanctions have made imports of this commodity potentially constraint. This condition as a supply constraint can damage the production of other economic sectors through rising in production prices and changing Iranian household welfare. Thus, a key question in this regard is how Iranian household expenditures will be affected in different consumer groups if the gasoline supply is constrained. To answer this question, the mixed-variable input-output price model and a symmetric Iran 38 × 38 input-output table for the year 2005 were employed. The results showed that most of the poor urban groups, especially the first eight groups, show a high sensitivity to the rise in gasoline prices and reduction in their overall expenditures. Nevertheless, rural households, unlike urban households, are heavily dependent on gasoline consumption, and do not reduce their expenditures in response to price changes.

Assessing Socioeconomic Impacts of Integrating Distributed Energy Resources in Electricity Markets through Input-Output Models

In competitive electricity markets, the growth of electricity generated by renewable sources will reduce the market price of electricity assuming marginal cost pricing. However, small renewable distributed generation (RDG) alone cannot modify the formation of electricity prices. By aggregating small RDG units into a Virtual Power Plants (as a single unit market) they are capable of dealing at the wholesale electricity market analogous to large-scale producer following in changes in wholesale prices. This paper investigates the socioeconomic impacts of different type of RDG technologies on Spanish economic sectors and households. To this end, we applied an input-output price model to detail the activities more sensitive to changes in electricity price due to RDG technologies deployment and the associated modifications in income and total output associated with the households’ consumption variation. Detailed Spanish electricity generation disaggregation of the latest available Spanish Input-Output table, which refers to 2015, was considered. It was found that the integration of RDG units in the electricity market project a better situation for the economy and Spanish households. This paper’s scope and information can be used to benefit decision-making with respect to electricity pricing policies.

Energy import costs in a flexible input-output price model

A fundamental assumption of the input-output (IO) model is a fixed relationship between interindustry flows. In the price version of the model, the assumption of fixed-coefficients prevents the optimal mix of inputs being adjusted when relative prices change. The aim of this paper is to evaluate the role of energy import prices in the IO price model without the usual non-substitution technology inherent to the input-output structure. The analysis includes alternative substitution possibilities for the elements that comprise the sectoral costs, which are empirically implemented from an IO dataset. The various substitution scenarios are defined by three different cost structures: the Leontief, Cobb-Douglas and Constant Elasticity of Substitution (CES) functions. The empirical application to the Catalan economy illustrates the relevance of the flexibility option used for explaining the quantitative influence of energy import prices on domestic prices. Adapting the traditional input-output model to include factor substitution makes it possible to overcome the rigidity in transmitting price impacts, and illustrates a range of possible effects.