Publication: The Effect of Carbon Taxes on Aggregate Productivity: The Case of the Dominican Republic
Loading...
Date
2024-10-15
ISSN
Published
2024-10-15
Editor(s)
Abstract
This paper examines the impact of implementing a carbon tax on aggregate total factor productivity in the Dominican Republic through the resource allocation channel. It incorporates energy inputs—electricity and fuel—into firms’ production functions, allowing predictions of potential changes in resource allocation due to the carbon tax. The theoretical implications of the model indicate that the carbon tax has a heterogeneous effect on firms’ input choices, contingent on the level of firms’ existing input market distortions. Moreover, the model suggests that in economies in which more productive firms are less distorted, the carbon tax can decrease aggregate total factor productivity. In contrast, when more productive firms are more distorted, the carbon tax can increase or decrease aggregate total factor productivity. Utilizing detailed firm-level data from 2009 to 2018, covering up to 118,000 firms, this paper finds that a carbon tax is more effective when levied on fuels rather than electricity. For the majority of sectors in the sample, the paper finds that existing distortions in energy consumption are positively correlated with firm-level productivity. Moreover, the quantitative results show that the introduction of the carbon tax shifts the burden of market distortions from high productivity firms to low productivity ones, generating aggregate total factor productivity gains for most sectors in the Dominican Republic. Overall, this study underscores the importance of considering existing input market distortions when analyzing the impact of environmental taxes.
Link to Data Set
Citation
“Ferro, Esteban; Mare, Davide S; Miguel Liriano, Faruk; Patiño Peña, Fausto; Rodriguez Quezada, Maria Gabriela; Zeni, Federica. 2024. The Effect of Carbon Taxes on Aggregate Productivity: The Case of the Dominican Republic. Policy Research Working Paper; 10944. © World Bank. http://hdl.handle.net/10986/42250 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Geopolitics and the World Trading System(Washington, DC: World Bank, 2024-12-23)Until the beginning of this century, the GATT/WTO system worked. Economic research provided a compelling explanation. It showed that if governments maximize the well-being of their own countries broadly defined, GATT/WTO principles would facilitate mutually beneficial cooperation over their trade policy choices. Now heightened geopolitical rivalry seems to have undermined the WTO. A simple transposition of the previous rationalization suggests that geopolitics and trade cooperation are not compatible. The paper shows that this is only true if rivalry eclipses any consideration of own-country well-being. In all other circumstances, there are gains from trade cooperation even with geopolitics. Furthermore, the WTO’s relevance is in question only if it adheres too rigidly to its existing rules and norms. Through measured adaptation to the geopolitical imperative, the WTO can continue to thrive as a forum for multilateral trade cooperation in the age of geopolitics.Publication From Patriarchy to Policy(Washington, DC: World Bank, 2025-05-29)Legal institutions play an important role in shaping gender equality in economic domains, from inheritance to labor markets. But where do gender equal laws come from? Using cross-country data on social norms and legal equality, this paper investigates the socio-cultural roots of gender inequity in the legal system and its implications for female labor force participation. To identify the impact of social norms, the analysis uses an empirical strategy that exploits pre-modern differences in ancestral patriarchal culture as an instrument for present-day gender norms. The findings show that ancestral patriarchal culture is a strong predictor of contemporary norms, and conservative social norms are associated with more gender inequality in the de jure legal framework, the de facto implementation of laws, and the labor market. The paper presents evidence for a political selection mechanism linking norms to laws: countries with more conservative norms elect political leaders who are more hostile to gender equality, who then pass less progressive legislation. The results highlight the cultural roots and political drivers of legalized gender inequality.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.Publication Rethinking Fiscal Policies(Washington, DC: World Bank, 2025-05-27)This paper examines the redistributive impact of fiscal policy—specifically taxes and transfers—on poverty and inequality in eight countries in the Middle East and North Africa: the Arab Republic of Egypt, Djibouti, the Islamic Republic of Iran, Iraq, Jordan, Morocco, Tunisia, and the West Bank and Gaza. Utilizing the Commitment to Equity framework, the analysis evaluates how fiscal interventions alter income distribution across these diverse national contexts. The results indicate that direct cash transfers and social assistance programs are generally effective in reducing poverty and shielding vulnerable populations, while in-kind benefits—particularly in education and healthcare—significantly contribute to mitigating income inequality. In contrast, generalized subsidies, especially in the energy sector, are fiscally burdensome and largely regressive, offering limited equity gains. Indirect taxes, although important for revenue generation, often exacerbate income disparities. The study underscores the need for comprehensive fiscal reforms, including the expansion of well-targeted transfers, adoption of progressive taxation, and reallocation of inefficient subsidies toward investments in human capital. Successful initiatives, such as Egypt’s Takaful and Karama and Jordan’s Takaful and bread subsidy compensation programs, illustrate scalable models of effective redistribution. Moreover, the Islamic Republic of Iran’s progressive tax policies highlight viable pathways to equitable revenue mobilization. Strengthening investment in education and health is essential for promoting long-term equity, enhancing upward mobility, and supporting inclusive and sustainable development across the region.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication The Role of Firm Dynamics in Aggregate Productivity, Job Flows, and Wage Inequality in Ecuador(Washington, DC: World Bank, 2024-03-27)This paper examines the role of firm dynamics in aggregate total factor productivity, job flows, and wage inequality in Ecuador. Utilizing a comprehensive employer-employee dataset, the paper documents firm dynamics and job flow patterns that are consistent with the presence of market distortions. Also, the paper identifies factor misallocation as the main contributor to Ecuador's total factor productivity deceleration. Given these trends, the paper explores allocative inefficiency drivers through firm- and industry-level regressions. Firms in the top productivity quintile face distortive non-wage labor costs that are 3.7 times higher than the bottom quintile, after controlling for firm size and age. The findings also provide evidence of credit misallocation across firms. Additionally, industries with higher job mobility, credit access, and competition and lower non-wage labor costs, minimum wage incidence, and zombie firms demonstrate higher allocative efficiency. Moreover, worker-level regressions indicate that misallocation drivers explain up to 41 percent of wage inequality, with non-wage labor costs and product market frictions as distortions driving this inequality.Publication The Financial Premium and Real Cost of Bureaucrats in Businesses(Washington, DC: World Bank, 2024-09-26)This paper characterizes finance allocation distortions in capital markets across state-owned and private-owned enterprises. It does so by implementing Whited and Zhao’s (2021) methodology to infer idiosyncratic financial distortions on a novel firm-level database containing information on the ownership structure of firms operating in 24 European countries during 2010–16. The analysis finds that firms with public authorities as direct shareholders (state-owned enterprises) have subsidized access to debt and equity, compared to their private counterparts. The paper then quantifies the macroeconomic effects of removing state-owned firms and reallocating their financial resources toward the private sector. The findings show that although state-owned enterprises are on average subsidized relative to private firms, removal of state-owned enterprises from the market may lead to aggregate productivity losses of up to 40 percent due to their superior technical efficiency in some sectors. Targeted reforms that only shut down poorly performing state-owned enterprises lead to aggregate total factor productivity gains in every country, reaching up to 15 percent. Reforms that in addition remove distortions before reallocating the released resources toward more productive firms increase productivity up to 83.7 percent.Publication Corporate Tax Rates, Allocative Efficiency, and Aggregate Productivity(World Bank, Washington, DC, 2023-04-11)This paper quantifies the impact of effective corporate tax rates on aggregate total factor productivity. Using Chilean manufacturing data, the paper documents a large dispersion in the effective tax rate faced by firms and a mass of firms facing a 0 percent tax rate. These empirical patterns are incorporated into a standard monopolistic competition model with corporate tax rates. The paper’s quantitative findings show that the TFP gains between the economy implied by the Chilean tax code of 1998–2007 and a hypothetical economy without effective corporate tax rate inefficiencies are between 4 and 11 percent. The paper considers counterfactual policies in which all firms face the same tax rate and finds a monotonically decreasing relationship between the level of the tax rate and total factor productivity.Publication Green Budget Tagging in the Kyrgyz Republic(Washington, DC: World Bank, 2024-09-16)The Green Budget Tagging Guidelines Conceptual Approach establishes a comprehensive framework for implementing green budget expenditure tagging in the Kyrgyz Republic, aligning with the country’s fiscal policy directions for 2024–2028. This initiative underscores the critical role of green budget tagging as a fundamental aspect of budget policy. This report delineates the objectives, processes, and roles of ministries and agencies in green budget expenditure tagging. It underscores the necessity of quality assurance, integration with the budget process, and provision of technical support to sector ministries and budget user agencies. Furthermore, it includes a phased implementation plan and detailed descriptions of the roles and responsibilities of different actors involved in the tagging process.,Publication Financial Structure and Firm Innovation(World Bank, Washington, DC, 2021-05)This paper analyzes the relationship between financial structure and innovation. Analysis of cross-country micro data over 2009–18 shows that a firm’s financial sources matter for the choice to innovate and the extent to which a firm innovates. The relationship is stronger for firms relying on non-bank financial intermediaries and for firms in low-technology sectors. Moreover, the use of external sources of finance is associated with improved prospects of innovation, especially in more financially developed countries. These findings suggest that developing the financial sector can bring benefits in terms of innovation.
Users also downloaded
Showing related downloaded files
Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises(Washington, DC: World Bank Group, 2013-10-28)Eleventh in a series of annual reports comparing business regulation in 185 economies, Doing Business 2014 measures regulations affecting 11 areas of everyday business activity: Starting a business, Dealing with construction permits, Getting electricity, Registering property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, Closing a business, Employing workers. The report updates all indicators as of June 1, 2013, ranks economies on their overall “ease of doing business”, and analyzes reforms to business regulation – identifying which economies are strengthening their business environment the most. The Doing Business reports illustrate how reforms in business regulations are being used to analyze economic outcomes for domestic entrepreneurs and for the wider economy. Doing Business is a flagship product by the World Bank and IFC that garners worldwide attention on regulatory barriers to entrepreneurship. More than 60 economies use the Doing Business indicators to shape reform agendas and monitor improvements on the ground. In addition, the Doing Business data has generated over 870 articles in peer-reviewed academic journals since its inception.Publication Remarks to the Annual Meetings 2020 Development Committee(World Bank, Washington, DC, 2020-10-16)David Malpass, President of the World Bank Group, announced that the Board approved a fast track approach to emergency health support programs that now covers 111 countries. Most projects are well advanced, with average disbursement upward of 40 percent. The goal is to take broad, fast action early. The operational framework presented back in June has positioned the Bank to help countries address immediate health threats and social and economic impacts and maintain our focus on long-term development. The Bank is making good progress toward the 15-month target of 160 billion dollars in surge financing. Much of it is for the poorest countries and will take the form of grants or low-rate, long-maturity loans. IFC, through the Global Health Platform, will be providing financing to vaccine manufacturers to foster expanded production of COVID-19 vaccines in both part 1 and 2 countries, providing production is reserved for emerging markets. The Development Committee holds a unique place in the international architecture. It is the only global forum in which the Governments of developed countries and the Governments of developing countries, creditor countries and borrower countries, come together to discuss development and the ‘net transfer of resources to developing countries.’ The current International Financial Architecture system is skewed in favor of the rich and creditor countries. It is important that all voices are heard, so Malpass urged the Ministers of developing countries to use their voice and speak their minds today. Malpass urged consideration of how we can build a new approach to debt restructuring that allows for a fair relationship and balance between creditors and debtors. This will be critical in restoring growth in developing countries; and helping reverse the inequality.Publication World Development Report 2011(World Bank, 2011)The 2011 World development report looks across disciplines and experiences drawn from around the world to offer some ideas and practical recommendations on how to move beyond conflict and fragility and secure development. The key messages are important for all countries-low, middle, and high income-as well as for regional and global institutions: first, institutional legitimacy is the key to stability. When state institutions do not adequately protect citizens, guard against corruption, or provide access to justice; when markets do not provide job opportunities; or when communities have lost social cohesion-the likelihood of violent conflict increases. Second, investing in citizen security, justice, and jobs is essential to reducing violence. But there are major structural gaps in our collective capabilities to support these areas. Third, confronting this challenge effectively means that institutions need to change. International agencies and partners from other countries must adapt procedures so they can respond with agility and speed, a longer-term perspective, and greater staying power. Fourth, need to adopt a layered approach. Some problems can be addressed at the country level, but others need to be addressed at a regional level, such as developing markets that integrate insecure areas and pooling resources for building capacity Fifth, in adopting these approaches, need to be aware that the global landscape is changing. Regional institutions and middle income countries are playing a larger role. This means should pay more attention to south-south and south-north exchanges, and to the recent transition experiences of middle income countries.Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.