Ecological deficit tax: A tax design and simulation of compensation for ecosystem service value based on ecological footprint in China

Journal of Cleaner Production 230 (2019) 1128e1137

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Ecological deficit tax: A tax design and simulation of compensation for ecosystem service value based on ecological footprint in China Zhenxing Xiong a, b, Hong Li a, b, * a b

School of Economics, Peking University, Beijing, 100871, PR China Center for National Resource Economy Studies, Peking University, Beijing, 100871, PR China

a r t i c l e i n f o

a b s t r a c t

Article history: Received 1 May 2018 Received in revised form 8 May 2019 Accepted 15 May 2019 Available online 16 May 2019

The expansion of resource tax to the occupation of natural ecological space is an important part of China's tax reform. This paper quantifies the occupation of natural ecological space based on the demand for energy, water, and agriculture resources in terms of an ecological footprint, and creatively convert the carbon emissions from energy consumption to occupation of carbon sinks such as woodlands and grasslands, to obtain the ecological deficits in various regions of China. Based on the evaluation of the ecological service value, the paper determines the correspondence between consumption projects, land types and ecological functions, realized the accounting of the economic value of the national ecological deficit as the sum of the regional deficits. Based on this, the ecological deficit is used as an unpaid input factor in the construction of a green Social Accounting Matrix table, and a recursive dynamic Computable General Equilibrium model is used to analyze the effects of a tax policy on the compensation for the ecological deficit value. The simulation results show that the double-dividend hypothesis exists in the primary and tertiary industries, and employment in the secondary industry that with a high value-added labor decreased, resulting in decreases in both the labor income of residents and their proportion of the national income. The growth rate of GDP decreases in the short term and then gradually increases. Capital appreciation and net exports contribute greatly to economic growth. Based on the positive role of taxation schemes in reducing ecological deficits and their negative impacts on economic growth and the income distribution, this paper suggests that, with the improvement of big data on ecological occupation, an ecological deficit tax can be introduced to target the energy sector, which has a large ecological footprint. In addition, household income should be protected through tax cuts, transfer payments, and earmarked funds, among other means, to promote economic growth and protect the environment. © 2019 Published by Elsevier Ltd.

Keywords: Tax reform Ecological footprint Ecological service value Ecological compensation

1. Introduction Land is a space carrier for the construction of ecological civilization. Important parts of building China's ecological civilization include carrying out unified registration and ownership confirmation of natural ecological space, such as water flows, forests, mountains, grasslands, unreclaimed land, and mudflats, and extending the resource tax to the occupation of various natural ecological spaces. Based on the concept of natural ecological space, quantifying ecological space occupancy and designing and analyzing tax schemes are of great significance to the research of

* Corresponding author. School of Economics, Peking University, Beijing, 100871, PR China. E-mail address: [email protected] (H. Li). https://doi.org/10.1016/j.jclepro.2019.05.172 0959-6526/© 2019 Published by Elsevier Ltd.

resource tax reform from theory to practice. In the theoretical study of resource tax, Hayward (2005) was the first to propose the idea of an ecological space tax. In his research, ecological space refers to the aggregation of bioproductive land and water that are able to provide natural resources for production and absorb the waste discharged from production, and the occupation of ecological space is represented by the ecological footprint. The theory and method of an ecological footprint were first put forward by Rees and Wackernagel (1996). The basic idea is that the sources of various products and services for human production and life are based on land with ecological service functions. The ecological footprint can be used to describe various types of land with various ecological functions, such as woodlands, grasslands, arable land, and waters, on which certain people and consumption projects depend for a certain period and in a certain area, thereby quantifying the occupation of natural ecological space. Kolers (2012) was

Z. Xiong, H. Li / Journal of Cleaner Production 230 (2019) 1128e1137

the first to explicitly mention the Ecological Footprint Tax, also known as the EcoSpace Tax, he proposed the use of ecological footprints to define land use and argued that space occupation beyond the ecological carrying capacity is similar to a fiscal deficit, which may be maintained in the short term but will eventually reduce the ecological carrying capacity and service functions, and a tax based on the ecological footprint can promote fairness of land use. Although these studies apply the idea of natural ecological space and provide a theoretical basis for the design of taxation schemes, they are only preliminary conceptual proposals, which need further quantitative and empirical analysis. As a quantitative indicator of the ecological footprint, land has the function of being an ecological carrier and the property of having ecological value. From the perspective of the nature of land resources, land is not merely soil but a complex based on geology, hydrology, and other environmental media; furthermore, land contains certain biological resources. According to the type of cover formed, land can be divided into natural ecological spaces, with woodland, grassland, wetland, and desert as the carriers. On the one hand, land is the carrier of natural ecological space. Meyer and Turner (1992) noted that Land Use & Land Cover Changes (LUCC) is the most prominent landscape marker for terrestrial ecosystems. In China, Zhao et al. (2014), Lu et al. (2016), and Wang et al. (2018) conducted numerous studies on LUCC from the aspects of carbon cycle, climate change and sustainable development, put forward the tax and other means to regulate land use, and optimize the land ecosystem, so as to coordinate economic development and protect natural resources. On the other hand, progress has been made in research on the accounting of land ecological value. Costanza et al. (1997) clarified the economic value of ecosystem service functions in terms of the principles and methods, and their results have been applied to assessments of the economic value of various ecosystems in China. Xie et al. (2001), and Yang et al. (2008) studied the ecological service value in China from the aspects of region and land type respectively. In recent years, this method has been used extensively in ecological compensation (Xiong and Wang, 2010; Yin et al., 2018). The above mentioned studies on the impacts of land use and its value have not only led to a consensus focus on land use in protecting environment but also created conditions for calculating ecological values and compensation standards. However, the indirect occupation of land by consumer behavior has not been considered from the perspective of ecological footprint. Environmental taxes are an effective form of jumping from the philosophical value to the monetary value of ecological systems. In theory, taxes can constrain pollution discharge behaviors and realize external cost compensation (Pigou, 1920; Pearce, 1991). In practice, there have been successful implementations in Northern Europe. On the one hand, how does one design environmental tax schemes? China plans to attain its peak in carbon dioxide emissions around 2030 but will strive to reach this peak earlier. However, doing so requires that the resource tax collection scope be extended to the occupation of natural ecological space. What is the relationship between both resource consumption and carbon emissions and natural ecological space? How can one quantify the occupation of ecological space and calculate the economic value of the corresponding ecological functions? In addition, how can one determine the amount of compensation while considering both the ecological carrying capacity and the regional characteristics of China's natural ecological space? All of these are important questions to answer in environmental tax scheme design. On the other hand, what is the effect of the environmental tax scheme? There have been concerns about the possible positive and negative effects of environmental taxes on the economy, including the persistence of output growth (Chen, 2011), the existence of double dividends (Lu, 2011), and a regressive of income distribution (Jiang and Shao,

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2014; Jin et al., 2018). Therefore, it is extremely important to analyze comprehensively the effects of an resource tax on growth, employment, distribution, and trade in determining the taxation schemes, it also has important guiding significance for improving the scientific nature of tax schemes. Ecological footprints use descriptions of productive land to provide space for resources and pollution absorption. They can be used to represent not only the input of resources for production activities but also the output's demand for environmental capacity, thereby linking economic growth to its resource base and environmental conditions to reflect the sustainability of the economic system and the recycling of the ecosystem. In recent years, the methods used to study the carbon footprint tax have been applied to the ecological footprint tax. Using the pulp and paper industry as an example, Gemechu, et al. (2012) calculated the carbon footprint of its products and proposed collecting environmental taxes based on the carbon footprint. Tsan-Ming Choi (2013) studied the impact of the carbon footprint tax on the luxury goods supply chain and believed that a reasonable determination of the carbon footprint tax would induce retailers to purchase locally. Martí et al. (2015) studied the supply chain carbon footprint tax case, which consists of imposing a common tax for all emissions in the whole supply chain, and analysed the impact of different carbon policies. McAusland and Najjar (2015) made a relatively systematic proposal regarding the carbon footprint tax, i.e., setting the tax base to be the release and potential of all greenhouse gases in the product input and output. Considering the high cost of calculating the carbon footprint for each product, the recommendation is for companies to calculate the carbon footprint of their products as a tax base or to choose the carbon footprint specified by various types of products as a tax base. Empirical analysis of taxation based on ecological footprint is still a research gap. Taxation based on the ecological footprint is an important part of research on resource tax reform. For China in particular, natural resources are owned by the state, land assets are relatively weak, property tax has a limited role in protecting resources. Moreover, companies and residents do not directly occupy land. What is quantified by the ecological footprint is the demand induced by production and consumption behavior, which converts the occupation of natural ecological space into indirect occupation. Therefore, defining property rights is not an issue. This bears important practical significance for China's resource tax reform. In addition, the ecological footprint method can quantify the demand for land with carbon sequestration capacity by the carbon dioxide emissions from energy consumption, thereby reflecting the relative relationship between carbon sources and carbon sinks. The calculation includes not only energy consumption but also the land cover required for carbon sequestration. However, neither the ecological footprint tax nor the carbon footprint tax combines resources and environmental needs with the ecological carrying capacity of the supply side. It is therefore difficult to determine the efficiency boundary of resource consumption and pollution emissions. Not only is it impossible to prevent the ecological footprint from exceeding the ecological carrying capacity, but taxation may continue even under ecological surplus conditions, thus making it impossible to effectively utilize the productivity of natural ecological space. Based on this, this paper proposes an ecological deficit tax scheme, that is, the environmental tax based on ecological deficit value compensation. On the one hand, the ecological deficit is an extension of the ecological footprint calculation, linking the use of resources and pollution emissions to the ecological carrying capacity of the supply side. An ecological deficit occurs when the ecological footprint exceeds the ecological capacity, in which case the deficit should be compensated. On the other hand, the

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existence of ecological deficits indicates that resource and emission tax regulations are not strong enough and that the value compensation for factors is not justified; thus, an ecological deficit tax is reasonable in theory. The contribution of this paper is to convert the carbon emissions from energy consumption into occupation of carbon sinks such as woodlands and grasslands with carbon sequestration capacity. And at the same time, to correspond to consumption projects, land types and ecological functions, realized the accounting of the economic value of the national ecological deficit as the sum of the regional deficits. And further design and analysis of the application of extending the resource tax to the natural ecological space. The rest of the paper will build the Computable General Equilibrium (CGE) model and prepare the Social Accounting Matrix (SAM) table to analyze the policy effects of the tax plan. The research framework is shown in Fig. 1.

X  EC ¼ N,ec ¼ N, uj ,rj ,Sj

(2)

j

where EC is the ecological carrying capacity, ec is the per capita ecological carrying capacity, Sj is the j-type production land area, and uj is the production factor of the j-type production land, expressing the ratio of the average productivity of the same type of land in the world. 2.2. Accounting of ecological deficit value

2. Model and method

The value of ecosystem services is calculated by using the land corresponding to various natural ecological spaces as a unit to quantify the value of such service functions as the provision of food production, raw material production, gas regulation, hydrological regulation, waste treatment, and the maintenance of biological diversity as well as the provision of aesthetic landscapes. The calculation method is as follows:

2.1. Quantification of ecological footprint

EV ¼

X  Vj m ,Sj

(3)

jm

The calculation of an ecological footprint is essentially based on the assumption that the consumption of natural resources can be converted into geographical spaces with production functions by using land as the carriers. It is also assumed that all types of productive land are mutually exclusive in space; that is, each type of land has a single function, so there is no double counting involved in the addition. The ecological footprint involves the demand for productive land from consumption projects by the population within a certain region in a certain period. The basic method can be expressed as follows:

X   EF ¼ N,ef ¼ N, ðQPi þ QMi QFi Þ,rj pi

(1)

ij

where EF is the ecological footprint, ef is the per capita ecological footprint, N is the population, i is the type of consumption project, and j is the type of production land. QP, QM, and QF are per capita volume of local production, import, and export of consumption projects. The parameter p is the annual average productivity of the land (kg/ha), and r is a factor that converts different types of productive land into uniform and comparable production areas with equal productivity. Ecological footprint is the demand for the occupation of natural ecological space, and supply is the ecological carrying capacity. The calculation method is shown as follows:

where Vjm represents the value of the m ecological services of the jtype ecological space per unit area. Sj is the same as above and indicates the geographical area of the j-type ecological carriers, and EV is the total value of the ecological services of various ecological types. The calculation of ecological value reflects the service functions of regional land, whereas the ecological footprint quantifies the land standardized globally. Although the two differ slightly, the key to calculating ecological value is to determine the equivalence and its value and then determine the value of the various services of various types of land by using the weights of the equivalence factor table to form a pricing system Vjm. This paper uses this pricing system to calculate the value of ecological deficits. Furthermore, because purified non-direct effluent does not occupy a natural ecological space, the ecological footprint calculated based on consumption should be subtracted from the amount of purification before discharge. We set the pollution purification ratio to u and obtain the ecological deficit (ED) and its amount of value (QE) as follows:

ED ¼ ð1  uÞEF  EC QE ¼

X

Vj m ,½ð1  uÞEF  EC

(4) (5)

2.3. CGE analytical model

Fig. 1. Research on an ecological deficit tax and its analytical framework.

The Computable General Equilibrium (CGE) model is a combination and improvement of the input-output model and the linear programming model. This model uses the producer, consumer, government, and foreign economy as the basic economic units and generally includes a production module, trade module, revenue and expenditure module, and equalization module. This paper introduces ecological factors into the production function. The setting of the taxation scheme impacts only the relative prices of the factors and their demand and does not directly impact the income distribution or commodity trade. Therefore, this paper uses the trade module, household income and expenditures, company income and expenditures, and government expenditures as the basic form of the CGE model (Chang, 2012). The constant elasticity substitution (CES) production function is

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a commonly used nonlinear function of the CGE model. Assuming that the production uses two kinds of production factors, the valueadded factors and intermediate product inputs are QV and QU, and the corresponding prices are PV and PU, following the principle of maximizing the profit of producers and using the minimization of cost as the objective function, with the total output function QA as a constraint. The behavior for business a can be expressed as follows:

min COSTa ¼ PVa ,QVa þ PUa ,QUa

(6)

 r r 1=ra q q q s:t: QAa ¼ aa ba QVaa þ 1  ba QUaa

(7)

where the a is the efficiency parameter, also called the total factor productivity; b is the share parameter; and r is a parameter related to the substitution elasticity, hereinafter the same, distinguish by parameters q, v and kl in each production function. The solution using Lagrange equations is as follows:

Min ¼ PVa , QVa þ PUa , QUa o n Lagrange    r 1=ra r l , QAa  aqa bqa QVaa þ 1  bqa QUaa

(8)

Differentiating the corresponding variable, the first-order optimization conditions are: 1 vL la r1 ¼ PVa  ½ba QVa þ ð1  ba ÞQUa r1 ba rQVa ¼ 0 vQVa ra

(9)

   r 1=rv r QVa ¼ ava bva QKLav þ 1  bva QEav

(13)

h

i rkl rkl 1=rkl kl kl QKLa ¼ akl a ba QKa þ 1  ba QL a

(14)

where QKL is a nesting of capital and labor factors. QK and QL are inputs of capital and labor factors, and QE is an input of ecological factors. Set the tax rate as te, taxation on the value of ecological factors is introduced into the factor demand and price functions to obtain the following:

  PKLa bkl QEa 1rkl ¼ , WEð1 þ teÞ 1  bkl QKLa

(15)

PVa , QVa ¼ PKLa ,QKLa þ WEð1 þ teÞ,QEa

(16)

  WK bk QLa 1rk ¼ , WL 1  bk QKa

(17)

PKLa , QKLa ¼ WK,QKa þ WL,QLa

(18)

where PKL is the nested price of capital and labor factors, WK, WL, and WE are the base prices of capital, labor, and ecological factors. Considering the production tax, the tax rate is denoted tu, and the price relationship of the total output is as follows:

QAa , PAa ¼ QVa , PVa þ QUa , PUa ¼ ðQKLa  PKLa  þ QUa  PUa Þ , ð1 þ tua Þ þ QEa , z , ð1 þ teÞ

1 vL la r1 ¼ PUa  ½ba QVa þ ð1  ba ÞQUa r1 ð1  ba ÞrQUa ¼ 0 vQUa ra

(10) The feature demand function is derived from the following:

  PVa ba QUa 1ra ¼ , PUa 1  ba QVa

(11)

The production and supply of commodities are subject to the impact of factor and commodity prices. The sales revenue and production costs are equal. Assuming that the commodity price is PA, the price function can be expressed as follows:

PAa , QAa ¼ PVa ,QVa þ PUa ,QUa

(12)

The commodity supply function (Equation (7)), the factor demand function (Equation (11)) and the price function (Equation (12)) make up the production module of the CGE model. The added value generally includes two production factors: labor and capital. The contribution of the ecological factor to economic growth has long been overlooked. In recent years, many studies have introduced the ecological factor as a production factor into the production function (Hasegawa et al., 2016). Using nested functions, referring to the value added and intermediate input to the production module, the production modules of capital-laborecological, capital-labor and various ecological factors can be obtained.

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(19)

In the CGE model, the intermediate input generally depends on the input-output table directly using the Leontief production function:

QNca ¼ ucaca ,QUa PUa ¼

X

ucaca ,PAc

(20) (21)

where QN is the total intermediate product inputs, c is an alias for business a, and uca is the input-output coefficient of intermediate input. The above constitutes a production module after the introduction of ecological factors.

3. Data The CGE simulation analysis uses the social accounting matrix (SAM) as a database. This paper compiled a green SAM table according to the 2012 National Input and Output Table of China. The income and expenditures of the government, firms, and households come from the “China Financial Yearbook” and the “China Statistical Yearbook." The ecological account accounts for the ecological service value of the ecological deficit formed by the consumption of agricultural products, water, and energy. The data comes from the “China Grain Yearbook”, “China Energy Statistical Yearbook”, and “China Water Statistical Yearbook”. For specific accounting methods, the accounting of agricultural and energy ecological footprints is based on Monfreda et al. (2004). The ecological footprint of water resources references Huang et al. (2005). The relevant parameters

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come from the World Wildlife Fund (WWF). In the consumption of agricultural products, the occupation of arable land includes the production of foodstuffs, vegetables, vegetable oils, and wine. The occupation of grassland includes the production of pork, beef, lamb, poultry, eggs, and milk, and that of woodland includes the production of fruits and melons. The ecological occupation of energy includes the demand for land to sequestrate carbon from carbon emissions from coal, coke, crude oil, gasoline, kerosene, diesel, fuel oil, and natural gas consumption. According to the estimation of the carbon sink of terrestrial vegetation in China from 1981 to 2000, the annual carbon sequestration capacity of grassland and woodland was 3.46 t/ha and 41 t/ha respectively (Fang et al., 2007), and arable land's effect on carbon sequestration, which is not significant, is usually set to zero. Considering the area of both woodland and grassland, this paper converts the energy ecological footprint into 7% of grassland and 93% of woodland for carbon sequestration. Furthermore, with reference to China's industrial exhaust emission compliance rate, the CO2 emission compliance rate is assumed to be u ¼ 90%; that is, 10% of the CO2 generated by energy consumption must be absorbed by the ecosystem, and the energy ecological footprint accounts only for the carbon sink demand that does not meet the emission standard. The calculation of ecological deficit is based on the provincial administrative regions. The ecological footprints and ecological carrying capacities of various regions are calculated separately. Then, the ecological deficits of each region are summed to obtain the nationwide ecological deficit. The ecological value calculation is based on the equivalent factor table and unit equivalent value determined by Xie et al. (2008). According to the agricultural product price index, the 2012 equivalent value is 659.88 yuan per hectare, indicating the economic value of food production of unit arable land under the natural state. The ecological value considers the service functions of all of the following: arable land food production and raw material production, grassland and woodland food production and raw material production, gas regulation, and hydrological regulation in the water area. The correspondence of consumption projects, ecological carriers and ecological functions is shown in Fig. 2: Land-based ecological factors provide services for production activities and create value, and account settings refer to the forms of labor and capital factors. In the SAM table, in which ecological factors are introduced, the ecological account column shows the virtual income generated by unpaid consumption by the excessive ecological footprint in institutional accounts. The value of the food production function corresponds to the residential sector, the value of the raw material production function is included in the corporate sector, and the value of gas regulation and hydrological regulation

function is incorporated into the government departments. The ecological account row represents the value created by unaccounted ecological factors, namely, the value of ecological deficits. Because the virtual income from unpaid consumption leads to an increase in the total income of households, firms, and government accounts, to maintain a balance between income and expenditures, this paper adds a corresponding virtual income to its savings accounts while increasing the value of ecological-deficit-aggregated virtual income in the domestic output and savings investment accounts to maintain a balance between the total supply and total demand. For the deficit value of the excessive ecological footprint in various production sectors, this paper uses the total resource consumption of the entire industry and the proportion of resource consumption of the corresponding departments to determine the value. Here, the resource consumption includes accounts related to agriculture, energy, and water resources, and the total amount is based on the weighted aggregation of the per capita footprint of the corresponding resource consumption. The proportion of resource consumption by each department to the total consumption of the industry is the share of the ecological deficit. 4. Results The proportion of resource taxes in China's tax revenue in 2012 was 0.58%, and the land value-added tax, arable land occupation tax, and land use tax summed to 4.33%. In comparison, the average level of resource and environmental taxes in Organisation for Economic Co-operation and Development (OECD) countries was approximately 6.9% (Fan and Li, 2015) and has declined each year. Based on the ecological deficit value accounted for, when the compensation tax rate is 5%, the corresponding income is approximately 1.92% of the total tax revenue for the current year, and the proportion of resource and environmental taxes reaches 6.83%, which is slightly lower than that of OECD countries. Therefore, this paper sets the tax rate for ecological deficit compensation at 5%. The model adopts a Keynesian closed economy, in which investment is exogenous and employment is endogenous, and applies dynamic recurrence to the capital supply and environmental regulation. Based on the analysis of the effects of an environmental tax and environmental regulation and other related studies on policy effects and the double-dividend hypothesis study in the expansion of the second dividend, this paper analyzes the effects of tax policy on the environment, employment, growth, distribution, and trade. The robustness of the CGE model can be simulated by parameter sensitivity analysis. If the simulation results of the elastic parameters in a certain interval are not much different, the model is relatively stable. In this paper, when the substitution elasticity is increased by 20% and decreased by 20%, the change of the observation index relative to the baseline scenario is very small, so the model is robust. The results of sensitivity test for elastic parameters is shown in Table 1: 4.1. Effect on the environment

Fig. 2. Ecological footprint and ecological value accounting system.

Fig. 3 shows the changes in the ecological deficits of the three major industries. Under the conditions of total volume control and tax compensation, overall, the ecological footprints of the three major industries decrease year by year, indicating that, the compensation scheme can control the ecological footprint and reduce the ecological deficit in the long run. In terms of the magnitude of change, the reductions in the three major industries are 25.23 billion yuan, 133.09 billion yuan, and 19.56 billion yuan. Therefore, the secondary industry, with its enormous ecological footprint, has the largest reduction in ecological deficit. The

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Table 1 The sensitivity test for elastic parameters of the CGE model. Index change rate (%) Import

Export

Total output

0.01 693 0.03 206

0.00 130 0.00 158

0.10 118 0.05 383

0.02 778 0.02 553

0.01 633 0.00 075











 

 

 

 



















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Fig. 3. Changes in ecological deficits in the production cycles of the three major industries (billion yuan).

reductions in the ecological deficits of the primary and tertiary industries are low because their ecological footprints are relatively small. Moreover, the ecological footprint of the tertiary industry is lower than that of the primary industry, so the reduction in the ecological deficit of the tertiary industry is also smaller than that of the primary industry. Specifically, The ecological deficit of the primary industry increases in the last two production cycles, it increases by 8 million yuan and 240 million yuan, with growth rates of 0.01% and 0.25%, though the reduction of its ecological deficit shows a decreasing trend during the simulation period. The ecological deficits of the secondary and tertiary industries decrease continuously, whereas the secondary industry sees an increasing trend, with an average annual reduction of 5.13 billion yuan in the first three production cycles and an average annual reduction of 9.30 billion yuan in the later three production cycles. The reduction in the ecological deficit of the tertiary industry decreases continuously, with the first four production cycles decreasing by more than 1 billion yuan annually, an average of 2.69 billion yuan annually, and then decreasing by less than 1 billion yuan annually, an average of 628 million yuan annually. In terms of various sectors, only seven sectors see an increase in their ecological deficits, and the remaining sectors all have reduced ecological deficits. Moreover, the ecological deficits for “chemical products” and four other sectors increase first, followed by a decrease, whereas the ecological deficit of “agricultural, forestry, animal husbandry, and fishery products and services” switches from a reduction to an increase. The largest contributor to the reduction of ecological deficit is the “food manufacturing and tobacco processing industry”, with an average annual reduction of 7.21 billion yuan. The ecological deficit of the “oil processing, coking, and nuclear fuel processing industries” increases significantly at an annual rate of 8.73 billion yuan. 4.2. Effect on employment Fig. 4 shows the changes in employment and the value added in the three major industries. The trend indicates that employment in the primary industry increases year by year but decreases in the secondary industry year by year, with a declining trend. The tertiary

industry sees an increase first, followed by a decrease. In the end, employment in the primary and tertiary industries increases, whereas employment in the secondary industry decreases. However, employment of the entire industry still grows. Specifically, the primary industry witnesses a relatively high growth rate in the first three production cycles, with an average annual increase of 5.82%, followed by a stable growth rate of 2.59%. The change rate of employment in the secondary industry has a Ushaped distribution. It increases gradually from 2.15% to 6.20% in the early period and gradually decreases to 0.54% in the later period. The change rate of employment in the tertiary industry has an inverted U-shaped distribution, it continued to increase and reaching a maximum of 1.82% in the early period, then the growth rate decreases, leading eventually to a negative growth rate of 1.56% in the end. Moreover, the reduction in employment exceeds that in the secondary industry. In terms of the employment structure, ultimately, employment increases in the primary and tertiary industries but decreases in the secondary industry, indicating that the labor in the secondary industry is transferred to other industries. However, the trend shows that employment will increase in the secondary industry but will continue to decrease in the tertiary industry. The primary industry remains stable, and the future labor will shift from the tertiary industry to the secondary industry. In terms of changes in the composition of the three major factors of the three major industries, the ecological footprints decrease, the capital demand increase, and there is an increase and a decrease in employment. The capital demands of the secondary and tertiary industries grow significantly, but it is relatively low and grows at a slower rate in the primary industry. The gap in the capital demand of the three industries widens continuously, and the capital demand of the secondary industry grows significantly faster than do those of the primary and tertiary industries. Therefore, the reduction of the ecological footprints of the three major industries is replaced by capital and labor factors. Among the three industries, the labor in the secondary industry is replaced by capital factors, so the demand for employment decreases. The capital demand of the primary industry increases, but the demand for labor increases much more.







































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Z. Xiong, H. Li / Journal of Cleaner Production 230 (2019) 1128e1137

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Fig. 4. Changes in employment and the value added in each production cycle of the three major industries.

4.3. Effect on growth Fig. 5 shows the value added by the three major industries and the changes in the GDP growth rate of the entire industry. The figure shows that GDP continues to grow and that its growth rate continues to rise. The initial growth rate is relatively low, but it rises rapidly and becomes steady in the later period. Thus, the tax policy based on ecological deficit compensation exerts a short-term negative impact on economic growth, but the economy recovers rapidly. Among the three major industries, the added value of the secondary and tertiary industries grow rapidly, with average annual growth rates of approximately 8.47% and 6.08%. The growth rate of the primary industry is relatively slow, with an average annual growth rate of approximately 3.24%. Among the various sectors, the net output value of only a few sectors decreases, such as “construction”, it continues to decline and the rate of decline has reached 1.10%. The net output value of most other sectors increases. Among these sectors, the net output value in such sectors as “chemical products” and “communication equipment, computers, and other electronics equipment” increases significantly, reaching 10.48% and 14.97%. In addition, growth in other six sectors, such as “electrical machinery and equipment”, reaches 10%. Thus, the tax scheme has the structural impact of accelerating one sector while slowing another based on the growth of various sectors and helps guide the optimization of the industrial structure. However, the economic growth is mainly attributable to the growth of the secondary industry. The tertiary industry also has great potential. Fig. 6 shows the trend of changes in total output and intermediate input across the industry. The gap between them widens

























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continuously, and the net output value increases year by year; that is, GDP is growing. In terms of the growth rate, the total output and the intermediate input both have relatively low growth rates in the initial period, indicating that the tax scheme impacts both the total output and the intermediate input, and their values decrease substantially in the initial period. However, the growth rate of them rises rapidly and maintains steady growth in the later period. The growth rate of intermediate inputs is relatively fast in the earlier period, and then the gap shrinks gradually and begins to grow below the growth rate of total outputs, indicating that the ratio of inputs to outputs drops; therefore, the growth rate of GDP decreases marginally.

4.4. Effect on the distribution Fig. 7 shows the incomes of households, firms, and the government and their proportion of the national income. The income growth shows that the incomes of the three major entities decline to different degrees in the initial period, then resume growth, and finally increase year by year. Corporate income and government income quickly exceed the beginning balance, and corporate income exceeds household income. The growth rate shows that corporate income grows significantly faster than household income and government income. The growth rate of government income is also obvious. Although it is slightly lower than the growth rate of corporate income, it is much higher than that of household income. The growth rate of household income is relatively slow. Corporate income comes mainly from return on capital, relatively high investment growth and a high return on factors lead to rapid growth in corporate income. Household income comes mainly from return on labor, in addition to investment income and transfer payments. As the demand for employment decreases in the secondary industry, which has a higher return on labor, the demand for employment increases in the primary industry, which has a lower return on labor. As a result, household income is greatly affected. Government income comes mainly from various tax revenues, whereas the increase in government income is mostly due to greater ecological compensation, which contributes to government income in the form of taxation. Moreover, increases in total output, household and corporate income growth also increase the amount of production tax and income tax. The changes in the income distribution show that although there are increases in household, corporate, and government income, the distribution ratio undergoes major adjustments because of the differences in income sources and growth rates. The

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Fig. 6. Changes in total output and intermediate input across the industry.

Fig. 7. Trends in the income and proportions of the three main distribution entities.

across the entire industry. Imports and exports maintain average annual growth rates of 12.71% and 15.3%. The growth rate of exports is relatively faster, so net exports increase, but its growth rate declines marginally, and the final growth rate of net exports is 13.19%. The final growth rates for imports and exports are 10.80% and 11.76%. The changes in the imports and exports of the three major industries show that the growth rate, or the amount of increase, of the secondary industry is significantly higher than those of the primary and tertiary industries. The growth rate of imports and exports in the primary industry is relatively small. The amount of increase, or the growth rate, of the tertiary industry is lower than that of the secondary industry but higher than that of the primary industry. Exports in all three major industries grow, with the fastest increase in and the largest contribution from the secondary industry. However, the growth trend indicates that the growth rate of the secondary industry declines marginally, whereas those of the

proportion of household income continues to decline at a large magnitude. The proportion of corporate income continues to rise, exceeding that of household income. The proportion of government income does not change much but increases slightly. In the entire income distribution composition, only the proportion of household income decreases; the proportions of corporate and government income both increase. This shows that the taxation scheme has a negative impact on household income in the long run. This is mainly due to the changes in the employment structure caused by factor substitution, resulting in labor flow to the primary industry, which has a lower return on labor. The tertiary industry increases, but at a small magnitude, and fails to increase the labor income of households to a large extent. 4.5. Effect on trade Fig. 8 shows the changes in exports, imports, and net exports

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Z. Xiong, H. Li / Journal of Cleaner Production 230 (2019) 1128e1137

primary and tertiary industries increase marginally. The final growth rates for the primary, secondary, and tertiary industries are 2.96%, 12.06% and 7.86%. The growth rate of the secondary industry is still significantly higher, reaching 93.04% of the entire industry. In terms of imports, the growth rates and trends of the three major industries are similar to those of exports. The final growth rates are 2.50%, 11.13%, and 6.71%, and the secondary industry account for 93.98%. The import growth is lower than the export growth in the three major industries, leading to growth in net exports. In terms of the net exports of the three major industries, the net exports of the primary industry are negative, resulting in net imports, whereas the secondary and tertiary industries are net exports. Because the primary industry is small-scale and the net exports of the secondary industry are significantly higher, the trade result for the entire industry is net exports. In various sectors of the secondary industry, the increase in net exports is mainly from “machinery manufacturing for instrumentation and cultural office supplies”. Net exports in this sector decrease in the early period and then increase. Thus, the sector changes from a net import sector to a net export sector, with its exports expanding rapidly. This contributes tremendously to the net exports of the entire industry, with a growth rate of 14.18%. In addition, net exports increase in the “textile industry”, “textile, garment, shoes, hats, leather, down products, and their products”, “paper-making, printing, cultural, and educational sports products manufacturing”, “metal products”, and “electrical machinery and equipment”. Annual net exports exceed 100 billion yuan. The net export growth in the tertiary industry comes mainly from “wholesale and retail trade”, with an average annual increase of 12.58% and net exports of 6.92 trillion yuan. In addition, the net exports of “transportation, warehousing and postal service” and “leasing and business services” exceed 500 billion yuan and 100 billion yuan. In addition to the net imports of the primary industry, the net imports are relatively high for four sectors, “oil and gas exploration products”, “metal ore mining and selection products”, “chemical products”, and “metal smelting and rolled processed products”, reaching 4.29 trillion yuan, 2.67 trillion yuan, 1.69 trillion yuan, and 1.89 billion yuan. The net imports in these industries are continuing to grow. 5. Discussion and conclusion 5.1. Discussion By quantifying the occupancy of natural ecological space and estimating its value, this paper proposed an environmental tax scheme that compensates for the ecological deficits arising from an overly large ecological footprint exceeding the ecological carrying capacity. The dynamic CGE model is used to analyze the policy effects of ecological deficit tax and test the existence of double dividend, the sustainability of output growth and the regression of income distribution. For the employment and environmental effects, a decrease in the ecological footprint and an increase in employment demand indicate that the tax scheme supports the double dividend hypothesis. The reduction in the ecological footprint is essentially a reduction in the excessive occupancy of ecological space, thereby reducing the ecological deficit. Thus, the tax scheme is effective in reducing the consumption of resources, such as energy and carbon emissions. The demand for labor of the entire industry has increased, but employment in the secondary industry has decreased significantly. Double dividends exist only in the primary and tertiary industries. Similar studies have also found that environmental taxes have a negative impact on employment in energyintensive industries (Rivera et al., 2016; Pui and Othman, 2017). This shows that the double dividend hypothesis is not universal.

In terms of the impact on economic growth, the policy shocks was short-term. It is generally believed that environmental tax has a negative impact on economic growth (Allan et al., 2014; Zhang and Zhang, 2018), the analysis of this paper shows that the economic growth rate decreased in the short term and then slowly resumed growth to exceed the growth in the early period, and more importantly, the efficiency of the input and output increased. The net output value of the secondary industry increased significantly, but the marginal growth rate decreased. The net export of the whole industry was negative at the beginning and then grew rapidly, contributing significantly to economic growth. As for the impact of income distribution, the proportion of residents' income declined relative to that of government and enterprises. For the secondary industry, the demand for ecological factors and labor factors decreased, because of its large scale and greatly change, the demand of the two factors is greatly affected, and the significant reduction of ecological occupation indicates that the secondary industry contributed the most to energy conservation and emission reduction. Moreover, the work pay in the secondary industry was relatively high, when the demand for labor decreases, the income of the residents decreases dramatically, and its proportion in the national income fell. This shows that workers' skills and rewards are sensitive to income distribution (Aubert and Chiroleu-Assouline, 2019). 5.2. Policy implications The research results show that the ecological deficit tax should be carried out to control and reduce the ecological occupation. In order to facilitate implementation, the industry characteristics should be taken into account in levying strategies and paths, sectors such as energy sector with a larger ecologic footprint can be levied first, and the agricultural sector can be waived temporarily. In order to popularize the tax scheme, it is necessary to further establish big data for ecological occupancy, including ecological footprints and ecological deficits at the national level, at the regional level, and for each natural ecological space such as woodland and grassland, to lay the foundation for the accounting for natural resources balance sheet (Ji and Xiong, 2017), and promote the implementation of cross-regional payments for ecosystem services (Song et al., 2018). In addition, it is necessary to stabilize the tax burden and optimize the tax structure by reducing the income tax of enterprises and residents, or respond to the decline in the growth rate of household income through transfer payments and a preferential agricultural policy system. In order to achieve sustainable development and ecosystem balance, on the one hand, it is necessary to reduce the tax burden on capital and labor factors through a reduction of income taxes.(Bosquet, 2000; Conefrey et al., 2013), and promote the growth momentum from the consumption of natural resources to the improvement of human capital and investment efficiency. On the other hand, it is necessary to recycle the environmental tax revenue to subsidize the research and development of environmental pollution control technology (Costa-Campi et al., 2017), and further improve the environment. Therefore, the recycling of tax revenue, the optimization of tax structure and the long-term impact of tax scheme will be further discussed in the near future. 5.3. Conclusion The tax scheme not only has theoretical advantages, but also has good empirical results. The ecological deficit tax uses the ecological footprint to realize the unified quantification of resource consumption and pollution emissions. It can determine the efficiency boundaries of resource consumption and pollution emissions by

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combining the ecological carrying capacity. Moreover, the virtual characteristics of ecological footprint realize the ecological service compensation of indirect ecological occupation and avoid the problem of defining land property rights. According to the simulation results, the tax scheme is effective in terms of energy conservation and emission reduction, and there are double dividends at the whole industry level. Therefore, the ecological deficit tax is very feasible for China, where environmental problems are increasingly prominent. At the same time, it should be noted that the tax scheme have a certain negative impact on the income distribution and economic growth, and corresponding supporting measures are needed to reduce short-term shocks. Acknowledgements The research was supported by the National Social Science Foundation of China, 2015(no. 15ZDA059); China Postdoctoral Science Foundation of the 64st batch, 2018(no. 2018M641036). References Allan, G., Lecca, P., McGregor, P., Swales, K., 2014. The economic and environmental impact of a carbon tax for Scotland: a computable general equilibrium analysis. Ecol. Econ. 100, 40e50. Aubert, D., Chiroleu-Assouline, M., 2019. Environmental tax reform and income distribution with imperfect heterogeneous labour markets. Eur. Econ. Rev. 116, 60e82. Bosquet, B., 2000. Environmental tax reform: does it work? A survey of the empirical evidence. Ecol. Econ. 34 (1), 19e32. Chang, Gene H., 2012. Principles of Computable General Equilibrium Modeling and Programming. Truth & Wisdom Press, Shanghai. (Chinese). Chen, S., 2011. Marginal abatement cost and environmental tax reform in China. Soc. Sci. China 3, 85e100 (Chinese). Choi, T.M., 2013. Local sourcing and fashion quick response system: the impacts of carbon footprint tax. Transport. Res. E Logist. Transport. Rev. 55, 43e54. Conefrey, T., Fitz Gerald, J.D., Valeri, L.M., Tol, R.S., 2013. The impact of a carbon tax on economic growth and carbon dioxide emissions in Ireland. J. Environ. Plan. Manag. 56 (7), 934e952. Costa-Campi, M.T., Garcia-Quevedo, J., Martínez-Ros, E., 2017. What are the determinants of investment in environmental R&D? Energy Policy 104, 455e465. Costanza, R., et al., 1997. The value of the world's ecosystem services and natural capital. Nature 387 (6630), 253e260. Fan, L., Li, X., 2015. The trend of tax structure changes in various countries and its reflection. Taxation Research (1), 39e47 (Chinese). Fang, J., Guo, Z., Pu, S., Chen, A., 2007. Terrestrial vegetation carbon sinks in China, 1981-2000. Science in China(Series D:Earth Sciences) 37 (6), 804e812 (Chinese). Gemechu, E.D., Butnar, I., Llop, M., Castells, F., 2012. Environmental tax on products and services based on their carbon footprint: a case study of the pulp and paper sector. Energy Policy 50, 336e344. Hasegawa, T., Fujimori, S., Masui, T., Matsuoka, Y., 2016. Introducing detailed landbased mitigation measures into a computable general equilibrium model. J. Clean. Prod. 114, 233e242. Hayward, T., 2005. Thomas Pogge's global resources dividend: a critique and an

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