Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/333651 
Year of Publication: 
2025
Series/Report no.: 
IZA Discussion Papers No. 18212
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
This paper provides the first comprehensive evidence on how firms in emerging economies respond to carbon taxation. Using detailed administrative data, we study the announcement and implementation of South Africa's 2019 carbon tax—a potential trailblazer for other developing countries with limited state capacity amid the global expansion of carbon pricing. Contrary to concerns that carbon taxes might hinder growth or employment, we find no negative effects on firm performance or jobs. Firms facing higher effective tax rates increased activity following the tax's announcement, four years before implementation, likely reflecting the resolution of regulatory uncertainty and efforts to mitigate stranded asset costs. While we find no measurable reduction in emissions—likely due to this anticipatory behavior—our results suggest that carbon taxation can be implemented without harming economic outcomes, even in the short term and in low- and middle-income settings.
Subjects: 
carbon pricing
carbon tax
firm performance
employment outcomes
JEL: 
H23
Q52
Q58
O13
O55
Document Type: 
Working Paper

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