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 eff ective and economically efficient policy instruments to reduce carbon dioxide (CO2) emissions. If cost effective, however, carbon taxes migh t impose widely distributed economic burdens among industrial sectors or firms, particularly when factor mobilities are imperfect in the sho ut 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. Attem pts ave also made to evaluate a government subsidy (financed by tax re venues) to investments in new energy-efficient technologies as a compl ementary mitigation policy to carbon taxation.