Macroeconomic and sectoral impacts of carbon taxation: A case for the Japanese economy

It is now commonly recognized that a carbon tax is one of the most effective and economically efficient policy instruments to reduce carbon dioxide (CO 2) emissions. If cost effective, however, carbon taxes might impose widely distributed economic burdens among industrial sectors or firms, particularly when factor mobilities are imperfect in the short run, since high economic performance could be hindered by a serious implementation of the polluter pays principle. We examine and compare a trade off relationship between the expected macroeconomic costs and sectoral impacts in a simplified general equilibrium framework. Attempts are also made to evaluate a government subsidy (financed by tax revenues) to investments in new energy-efficient technologies as a complementary mitigation policy to carbon taxation.