The Economic Impacts of Carbon Taxes in the Developing World: Evidence from South Africa

The use of carbon taxes to reduce greenhouse gas (GHG) emissions is gaining increasing attention, both in developed and developing economies. However, policymakers, particularly those from developing countries, still lack rigorous empirical evidence on various issues related to the effects of carbon taxes. Despite strong opposition from the industry, South Africa was the first country on the African continent to introduce a carbon tax in 2019. Using detailed tax administrative data on the universe of South African firms, we are the first to provide empirical evidence on the economic, environmental and distributional consequences of the introduction of the carbon tax in 2019. Empirically, we rely on a matched difference-in-difference approach, where we compare economic outcomes of carbon tax firms with non-carbon tax firms over time. Preliminary results suggest that on average, the introduction of the carbon tax did not impose any substantial costs on the economy. However, we do find some sectoral heterogeneity in the effects.