Dynamic computable general equilibrium analysis of environmental taxation and "rural-urban" migration distortions in China

Abstract

This study investigates the potential impact of two environmental tax regimes on the movement of rural people to China’s cities. The study models the impact of a fuel tax and an output tax on the country’s economy to get a full picture of how they would affect people’s livelihoods and welfare, and how this would, in turn, affect rural-urban migration. The study sheds light on the implications of future environmental taxes and how they would affect urbanization and “rural-urban” migration in China. The study finds that both proposed taxes would discourage the flow of migrants from China’s countryside to its cities. This would therefore exacerbate the current distortions in the country’s labour market, where there is a surplus of rural labour. A comparison of the impact of the two taxes shows the fuel tax to be more efficient in terms of reducing pollution emissions and their associated environmental and health impacts. It also produces less distortion in the rural-urban migration process than the output tax. The study therefore recommends that this would be the preferable policy.