international oil shocks and household consumption in china abstract we investigate the impacts that oil price shocks have on residential consumption in china while it is well understood that oil prices affect consumption in a multitude of ways the timing and directness of these effects on specific consumption categories is not clear we demonstrate that the most immediate and direct effect passes through transportation consumption as might be expected but we also show that significant effects pass through consumption in other sectors including food and clothes medical expenditure and other general living expenditure with less immediacy given the results particularly observed asymmetries with respect to rises and falls in international oil prices we discuss some implications for future adjustments to domestic price policies in particular the case for removal of domestic price regulation

strikes and holdouts in wage bargaining theory and data we develop a private information model of union contract negotiations in which disputes signal a firm s willingness to pay previous models have assumed that all labor disputes take the form of a strike yet a prominent feature of u s collective bargaining is the holdout negotiations often continue without a strike after the contract has expired production continues with workers paid according to the expired contract we analyze the union s decision to strike or hold out and highlight its importance to strike activity strikes are more likely to occur after a drop in the real wage or a decline in unemployment

estimating elasticities of substitution with nested ces production functions where do we stand abstract prompt by an increasing interest by climate change modelers a rich literature estimating elasticities of substitution in a nested ces production framework has recently developed this article reviews such literature we critically describe the nesting structures estimation approaches data sources and aggregation econometric techniques and types of substitution elasticities used by previous literature to offer a comprehensive description of the various options available to a researcher attempting this estimation we also provide suggestions for potential improvements to the estimation process in particular we warn researchers to use ces production functions with caution in empirical applications given their restrictive build in assumptions

measures of potential output an application to israel this paper estimates measures of potential output for israel with the aim of providing evidence on whether the recent growth slowdown is principally a cyclical slowdown or a structural shift towards a slower growth path after the dramatic developments associated with the years of heavy immigration israel poses a challenge because traditional methods of measuring potential output assume relatively stable conditions over an extended period of time five methodologies are employed to derive estimates and it is found that four of the measures imply the slowdown stems largely from reduced growth of potential output rather than a cyclical slowdown

renegotiation collective action clauses and sovereign debt markets abstract collective action clauses cacs are provisions specifying that a supermajority of bondholders can change the terms of a bond we study how cacs determine governments fiscal incentives sovereign bond prices and default probabilities in environments with and without contingent debt and imf presence we claim that cacs are likely to be an irrelevant dimension of debt contracts in current sovereign debt markets because of the variety of instruments utilized by sovereigns and the implicit imf guarantee nonetheless under a new international bankruptcy regime like that recently proposed by the imf cacs can increase significantly the cost of borrowing for sovereigns contrary to what is suggested in previous empirical literature

collective action clauses how do they affect sovereign bond yields abstract we study the effects of the adoption of collective action clauses cacs on government bond yields by exploiting secondary market data on sovereign bonds quoted in international markets from march 2007 to april 2011 cacs are assessed security by security using a panel data approach we find a u shaped effect of cacs on yields according to the credit rating of the issuer while the impact is negligible for the highest ratings a significant yield discount emerges for mid range ratings which is smaller for bad ratings and possibly insignificant for the worst ratings this relationship appears fairly robust across a number of checks this evidence may reflect the fact that cacs are valuable because they help with orderly restructuring unless the perceived probability of default is too small nevertheless at low ratings this effect can be weakened by an increasing risk of moral hazard

hares and stags in argentinean debt restructuring abstract the latest argentinean debt restructuring was the first time the resolution of a modern financial crisis was completely handed over to the private financial markets without official intervention by public institutions we argue that the resulting harshest haircut for private creditors in history can be at least partially related to a stag hunt game played by creditors we show that incentive schemes provided by the argentinean government were factors facilitating this haircut the analysis suggests that contrary to the recognition in the literature the effects of collective action clauses and exit consents within a restructuring process are not equal in the case of argentina the inclusion of collective action clauses in the defaulted bonds could have benefited the holdout creditors

bargaining and strikes strikes are generally regarded as an important economic phenomenon and yet good theoretical explanations of them are hard to come by the difficulty is to understand why rational parties should resort to a wasteful mechanism as a way of distributing the gains from trade why could not both parties be made better off by moving to the final distribution of surplus immediately or if it is uncertain to its certainty equivalent and sharing the benefits from increased production

analytics of sovereign debt restructuring abstract this paper develops a simple theoretical model to analyse recent proposals on restructuring of sovereign bonds we find that collective action clauses cacs inserted in bonds resolve the inefficiencies caused by intra creditor coordination problems providing that all parties have complete information about each other s preferences in such a world statutory mechanisms such as international bankruptcy courts are unnecessary this is no longer the case when the benefits from reaching a restructuring agreement are private information to the debtor and its creditors due to inefficiencies caused by the debtor creditor bargaining problem

sovereign debt restructuring since the early 1980 s patterns of emergingmarket finance have changed significantly greater integration of capital markets and a trend toward a greater use of direct lending through bonds has led to relatively decreased use of indirect finance through syndicated bank loans these changes have produced benefits to investors through opportunities for risk diversification and to emerging market sovereign borrowers by increasing the investor base the broadened investor base in bond financing however raises problems of coordination and collective action in the event of a sovereign borrower s default and restructuring now three parties are involved in determining the debt markdown required to produce solvency the debtor creditors and the global taxpayer through international financial institutions ifi s the complex relationships among the borrowers creditors and the global taxpayer have made restructuring obligations a costly and time consuming exercise especially with the possibility of holdouts both the sovereign borrower and its creditors have an incentive to avoid a restructuring in the hope of financial assistance from the global taxpayer sovereign governments may not undertake the politically painful steps involved in beginning a restructuring when there is always the hope that official assistance will be forthcoming creditors may not accept a reduction in the value of their claims also in the hope that official assistance will be forthcoming costs of postponed and disorderly restructurings are real and substantial delays in restructuring can drain a country s resources and increase the ultimate costs of restoring financial sustainability creditors bear a burden as well because the losses associated with the restructuring are reflected in values of

duration of sovereign debt renegotiation abstract in the period since 1990 sovereign debt renegotiations take an average of five years for bank loans but only one year for bonds we provide an explanation for this finding by highlighting one key difference between bank loans and bonds bank loans are rarely traded while bonds are heavily traded on the secondary market in our theory the secondary market plays a crucial information revelation role in shortening renegotiations consider a dynamic bargaining game with incomplete information between a government and creditors the creditors reservation value is private information and the government knows only its distribution delays in reaching agreements arise in equilibrium because the government uses costly delays to screen the creditors reservation value when the creditors trade on the secondary market the market price conveys information about their reservation value which lessens the information friction and reduces the renegotiation duration we find that the secondary market tends to increase the renegotiation payoff of the government but decrease that of the creditors while increasing the total payoff we then embed these renegotiation outcomes in a simple sovereign debt model to analyze the ex ante welfare implications the secondary market has the potential to increase the government ex ante welfare when the information friction is severe

how substitutable is natural capital one of the recurring themes in the sustainability literature has been the extent to which a loss of natural capital can be made up for in welfare terms by an increase in other forms of capital this issue was raised early on in the debate on sustainability by pearce and has never really been resolved this paper is an empirical attempt to measure the degree of substitutability between different forms of capital a nested ces production function is used to allow flexibility in the estimated elasticities of substitution also within this specification natural resources and other inputs are combined in different levels of the function thus allowing for different levels of substitutability institutional and economic indicators are also incorporated in the production function estimated results show that the elasticities derived from functions involving land resources were generally around one or greater implying a fairly high degree of substitutability furthermore changes in trade openness and private sector investment have a statistically significant and direct relationship on the efficiency of production and hence on income generation no statistically significant relationship between income and any of the institutional indicators was found

input substitution effect in china s chemical industry evidences and policy implications abstract the chemical industry is one of the six high energy consuming and emission intensive sectors in china and the chinese government has focused its attention on energy saving and emissions reduction in the sector with the aim of contributing to the objective of energy saving and emission reduction in the sector this article studies the external substitution relationship of capital energy and labor energy using the translog production function and ridge regression the results are as follow the output elasticities of energy labor and capital are positive the substitution elasticities of capital labor capital energy and labor energy are positive and stable and their values are close to 1 which indicates that the three factors are substitutes for one another furthermore based on the above function we measure the level of energy saving and emissions reduction under different scenarios in 2012 policy implications of the results are provided

the forgotten history of domestic debt there is a rich scholarly literature on sovereign default on external debt comparatively little is known about sovereign default on domestic debt even today cross country data on domestic public debt remains curiously exotic particularly prior to the 1980s we have filled this gap in the literature by compiling a database on central government public debt external and domestic the data span 1914 to 2010 for most countries reaching back into the nineteenth century and earlier for many our findings here on debt sustainability sovereign defaults the temptation to inflate and the hierarchy of creditors only scratch the surface of what the domestic public debt data can reveal first domestic debt is big for the 64 countries for which we have long time series domestic debt accounts for almost two thirds of total public debt for most of the sample this debt carries a market determined interest rate except for the financial repression era between wwii and financial liberalization second the data go a long way toward explaining the puzzle of why countries so often default on their external debts at seemingly low debt thresholds third domestic debt has largely been ignored in the vast empirical work on inflation in fact domestic debt a significant portion of which is long term and nonindexed is often much larger than the monetary base in the run up to high inflation episodes last the widely held view that domestic residents are strictly junior to external creditors does not find broad support

co ordination failure moral hazard and sovereign bankruptcy procedures we study a model of sovereign debt crisis that combines problems of creditor co ordination and debtor moral hazard solving the sovereign debtor s incentives leads to excessive rollover failure by creditors when sovereign default occurs we discuss how the incidence of crises might be reduced by international sovereign bankruptcy procedures involving contractibility of sovereign debtor s payoffs suspension of convertibility in a discovery phase and penalties in case of malfeasance in relation to the current debate this is more akin to the imf s sovereign debt restructuring mechanism than the collective action clauses promoted by others

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

solving the feldstein horioka puzzle with financial frictions unlike the prediction of a frictionless open economy model long term average savings and investment rates are highly correlated across countries a puzzle first identified by feldstein and horioka 1980 we quantitatively investigate the impact of two types of financial frictions on this correlation one is limited enforcement w here contracts are enforced by the threat of default penalties the other is limited spanning where the only asset available is noncontingent bonds we find that the calibrated model with both frictions produces a savings investment correlation and a volume of capital flows close to the data to solve the puzzle the limited enforcement friction needs low default penalties under which capital flows are much lower than those in the data and the limited spanning friction needs to exogenously restrict capital flows to the observed level when combined the two frictions interact to endogenously restrict capital flows and thereby solve the feldstein horioka puzzle

capital energy substitution and the multi level ces production function abstract this paper has clarified a misconception in sato s multi level ces production function and used the function in testing for capital energy substitution in taiwanese manufacturing the empirical results show that capital and energy are substitutes and the aes estimates differ little from those derived from the translog approximation

energy efficiency and economic growth a retrospective cge analysis for canada from 2002 to 2012 abstract the efficiency with which energy is used by firms and households has widespread impacts on economic activity which in turn has implications for environmental quality and energy security using a novel method that could be used for other jurisdictions we estimate the impact of energy efficiency improvements on canadian gdp employment economic structure and welfare from 2002 to 2012 we use a counterfactual back casting method with a sectorally and regionally disaggregated dynamic recursive computable general equilibrium model in effect reverse calibrating the model from observed data to isolate the effects of energy efficiency we estimate that total energy efficiency improvements in canada during this period increased gdp by 2 0 0 19 yr employment by 2 5 0 24 yr and household welfare by about 1 5 0 15 yr additionally energy efficiency improvements reoriented economic structure from capital intense energy supply sectors to relatively labour intense manufacturing and services we find evidence of widespread rebound on an energy expenditure basis across most sectors and backfire where energy efficiency leads to absolute energy use increases in oil sands in situ extraction bitumen upgrading shale gas extraction lime production pulp paper and metal smelting but overall energy use is reduced by energy efficiency improvements over this period

does strengthening collective action clauses cacs help does improving creditor coordination by strengthening cacs lead to efficiency gains in the functioning of sovereign bond markets we address this question in a model featuring both debtor moral hazard and creditor coordination under incomplete information conditional on default we characterize the interim efficient cac threshold and show that strengthening cacs away from unanimity results in interim welfare gains however once the impact of strengthening cacs on debtor s incentives is taken into account we demonstrate the robust possibility of a conflict between ex ante and interim efficiency we calibrate our model to quantify such a welfare trade off and discuss the policy implications of our results

a nested ces approach to capital energy substitution abstract this paper uses the nested constant elasticity of substitution ces production function to estimate elasticities of substitution between capital labour energy and materials over the 1971 1976 period around the initial energy crisis elasticities are estimated for each of the two digit sic industries within us manufacturing using more disaggregate four digit sic data the nested ces function makes it possible to distinguish between engineering and economic elasticities of substitution capital and energy are estimated to be slight engineering substitutes and economic complements labour energy and materials are estimated economic substitutes

structural optimization and carbon taxation in china s commercial sector abstract given china s economic transformation and upgrading process the green development of commercial sector is more and more important based on the trans log cost function this paper calculates the inter factor and inter fuel substitution effects in china s commercial sector from 1980 to 2016 besides the paper further analyzes the driving factors of the dynamic changes in energy intensity and the impact of carbon taxation in china s commercial sector the main conclusions are as follows 1 capital labor and energy in china s commercial sector negatively correlate with their prices and the self price elasticities of energy labor and capital decline in turn 2 the relationship between labor and capital is substitutional and the same relationship is found when after considering labor and energy and that between energy and capital is complementary 3 demand for energy sources negatively correlates with their prices and there exist complementary relationships between energy sources 4 technical effects and substitution effects can effectively promote the decline of energy intensity in china s commercial sector 5 implementing a 50 rmb tonne carbon taxation will lead to 5 50 energy savings and 6 21 co2 reduction

detrending stylized facts and the business cycle the stylized facts of macroeconomic time series can be presented by fitting structural time series models within this framework we analyse the consequences of the widely used detrending technique popularised by hodrick and prescott 1980 it is shown that mechanical detrending based on the hodrick prescott filter can lead investigators to report spurious cyclical behaviour and this point is illustrated with empirical examples structural time series models also allow investigators to deal explicitly with seasonal and irregular movements that may distort estimated cyclical components finally the structural framework provides a basis for exposing the limitations of arima methodology and models based on a deterministic trend with a single break

restructuring sovereign debt this paper provides new empirical evidence relevant to the debate over the desirability of reforms to the way that financial markets and the international community deal with sovereign debt crises in particular given the ongoing opposition of investors and some sovereigns to greater use of collective action clauses cacs in emerging market bonds we present new evidence on the way that financial markets have priced the use or non use of cacs

is aggregation a problem for sovereign debt restructuring reform of the mechanisms and procedures through which problems of sovereign debt sustainability are resolved is at the centre of the effort to make the international financial system less crisis prone the purported difficulty of coordinating creditors holding distinct bond issues provides one basis for choosing among the reform proposals currently on the table we assess the significance of this difficulty the aggregation problem using evidence on the pricing of international bonds our evidence suggests that investors do perceive that aggregation has costs plausibly they worry most about difficulties of information sharing and coordination across issues when the debt in question is an obligation of a country with a significant perceived probability of having to restructure

crisis costs and debtor discipline the efficacy of public policy in sovereign debt crises abstract recent debate on the reform of the international financial architecture has highlighted the potentially important role of the official sector in crisis management we examine how such public intervention in sovereign debt crises affects efficiency ex ante and ex post our results shed light on the scale of capital inflows and the implications for debtor country output of such a regime the efficacy of measures such as officially sanctioned stays on creditor litigation depend critically on the quality of public sector surveillance and the size of the costs of sovereign debt crises

foreign law bonds can they reduce sovereign borrowing costs abstract governments often issue bonds in foreign jurisdictions which can provide additional legal protection vis a vis domestic bonds this paper studies the effect of this jurisdiction choice on bond prices we test whether foreign law bonds trade at a premium compared to domestic law bonds we use the euro area 2006 2013 as a unique testing ground controlling for currency risk liquidity risk and term structure foreign law bonds indeed carry significantly lower yields in distress periods and this effect rises as the risk of a sovereign default increases these results indicate that in times of crisis governments can borrow at lower rates under foreign law

a cheap lunch for emerging markets removing international financial market imperfections with modern financial instruments summary this paper develops a market based procedure to significantly reduce the indebtedness of emerging markets by applying an asset backed security approach to a pool of emerging market bonds in an extensive simulation study based on historical data the cumulated interest savings over a horizon of 10 years amount to about 20 of the credit sum on average with a standard deviation of 8 and up to 44 for individual countries dependent on the internal distribution of the surplus the theoretical structure of the transaction is explicitly derived in cooperation with professionals from major commercial banks and it implies only negligible implementation cost the implementation requires neither institutional reforms nor debt forgiveness but can supplement or substitute previous measures

sovereign liquidity crises the strategic case for a payments standstill is sovereign borrowing so different from corporate debt that there is no need for bankruptcy style procedures to protect debtors with the waiver of immunity sovereign debtors who already face severe disruption from short term creditors grabbing their currency reserves are also exposed to litigious creditors trying to seize what assets they can in a race of the vultures shielding sovereign debtors from inter creditor conflict by authorised standstills on payments doubt less runs some risk of debtor s moral hazard but the lack of an orderly procedure for resolving sovereign liquidity crises means that the imf is de facto forced to bail out countries in trouble this leads to both debtor and creditor moral hazard as investors lend without monitoring knowing that their investments are essentially guaranteed the strategic case for legalising standstills is to rescue the international financial system from this time consistent trap

taking time seriously dramatic world change has stimulated interest in research questions about the dynamics of politics we have seen increases in the number of time series data sets and the length of typical time series but three shortcomings are prevalent in published time series analysis first analysts often estimate models without testing restrictions implied by their specification second researchers link the theoretical concept of equilibrium with cointegration and error correction models third analysts often do a poor job of interpreting results the consequences include weak connections between theory and tests biased estimates and incorrect inferences we outline techniques for estimating linear dynamic regressions with stationary data and weakly exogenous regressors we recommend analysts 1 start with general dynamic models and test restrictions before adopting a particular specification and 2 use the wide array of information available from dynamic specifications we illustrate this strategy with data on congressional approval and tax rates across oecd countries

estimated substitution elasticities of a nested ces production function approach for germany this paper demonstrates an econometric estimation of substitution elasticities of a nested constant elasticity of substitution production function ces between capital energy and labour for the west german industry in the last few years ces production functions have become more important in economic modelling especially for applied general equilibrium models where ces production functions are an important building stone in the literature different results of estimated elasticities can be found this paper investigates three different approaches for nested ces production functions and their estimated substitution elasticities capital energy and labour are estimated as substitutes for the west german industry in the long run

bond restructuring and moral hazard are collective action clauses costly abstract recent emerging market crises have prompted debate over the costs and benefits of collective action clauses cacs in bond contracts cacs may facilitate the restructuring of repayment terms in the event of financial distress proponents of cacs argue they should lower borrowing costs while opponents contend that they lead to moral hazard and increased borrowing costs this paper examines the pricing of bonds with and without cacs using data for both primary and secondary market yields and finds no evidence that the presence of cacs has increased yields for either higher or lower rated issuers

capital stock labor energy substitution and production efficiency study for china abstract this study estimates the elasticities of substitution for china from 1953 to 2006 by the two level constant elasticity of substitution ces production function with three factor inputs capital stock labor and energy a technological change rate and non constant returns to scale are under considered all possible combinations and two other subdivided periods are carried out respectively and their technological change rates elasticities of substitution and returns to scale are found this study also provides an analysis of production efficiency by using marginal productivity of specific factor input according to the estimated results and distinguishes the marginal productivities deriving from the three different combinations it suggests that the decision makers of china need to consider the effects of different factor inputs on gdp growth

strategic models of sovereign debt renegotiations the sovereign debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter this paper explores that assumption by analyzing three game theoretic models of debt renegotiations in two of the models both of which are built on the traditional one sector growth model all the subgame perfect equilibria have an extreme form in which the game s surplus is captured by the creditor the third game has many subgame perfect equilibria that do not have this feature however the roles of various assumptions in all three games are examined

energy conservation in china s light industry sector evidence from inter factor and inter fuel substitution following the impressive economic achievements in the past decades china is faced with energy and environmental challenges to carry out more effective and targeted energy policies the heterogeneities of different industrial sectors are of great importance the energy consumption of china s light industry in 2012 was 316 million tons of coal equivalents which is about the energy consumption of south korea the paper explored the substitution relationships between various input factors and fuel sources and showed that electricity price reform is crucial for energy conservation in china s light industry then the dynamics of energy intensity change is examined by decomposing energy intensity into budget effect substitution effect output effect and technology advance effect the result revealed that the substitution effect between input factors is a key driving force however technology progress seems to contribute very little for future energy policy alternatives promoting the implementation of new conservation technology and electricity price reform may be effective measures

sovereign risk and secondary markets conventional wisdom says that in the absence of default penalties sovereign risk destroys all foreign asset trade we show that this conventional wisdom rests on one implicit assumption that assets cannot be retraded in secondary markets without this assumption foreign asset trade is possible even in the absence of default penalties this result suggests a broader perspective regarding the origins of sovereign risk and its remedies sovereign risk affects foreign asset trade only if default penalties are insufficient and secondary markets work imperfectly to reduce its effects one can either increase default penalties or improve the working of secondary markets jel f34 g12 g15

factor substitution and factor augmenting technical progress in the united states a normalized supply side system approach abstract using a normalized ces function with factor augmenting technical progress we estimate a supply side system of the u s economy from 1953 to 1998 avoiding potential estimation biases that

a multistage model of bargaining this paper presents a simple multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused if rejected the process continues how the seller s ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible the effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed the ways in which the bargaining environment can be changed to improve outcomes are discussed

holdouts in sovereign debt restructuring a theory of negotiation in a weak contractual environment negotiations between a country in default and its international creditors are modeled as a dynamic game in an environment of weak contractual enforcement the country cannot borrow internationally until it settles with all creditors delay arises in equilibrium as creditors engage in strategic hold up the model a rms the conventional wisdom that delay increases with more creditors and with the advent of vulture creditors contrary to conventional wisdom putting collective action clauses into bond contracts may increase delay via free riding on negotiation costs even while preventing strategic holdup and reducing total negotiation costs secondary debt markets consolidate debt with high and disperse debt with low creditor bargaining power whether secondary markets reduce or increase delay depends on the interaction between strategic holdup and debt

output elasticities and inter factor substitution empirical evidence from the transportation sector of shanghai abstract as a major consumer of fossil fuels the transportation sector in shanghai presents a wide range of problems including air pollution noise and traffic congestion this study aims to explore the energy substitution effect based on a trans log production function to evaluate the contribution of each input factor to sectoral output and reveal the substitution possibilities between capital labor and energy to deal with a multicollinearity problem we adopt ridge regression to obtain the coefficient of each variable under the appropriate penalty value the bootstrap method is used for making statistical inferences and the 95 confidence interval is obtained with 1000 bootstrap samples the empirical results demonstrate the following 1 the output elasticities of capital 0 13 0 15 labor 0 24 0 25 and energy 0 43 0 48 are positive and show an increasing trend over the study period 2 the substitution elasticity between labor and energy is the highest among the input factors around 1 0095 with a slight decreasing trend 3 the substitution elasticity between energy and capital ranges from 1 0018 to 1 0021 and the substitution elasticity between capital and labor is infinitely close to 1

impact of a carbon tax on the chilean economy a computable general equilibrium analysis abstract in 2009 the government of chile announced their official commitment to reduce national greenhouse gas emissions by 20 below a business as usual projection by 2020 due to the fact that an effective way to reduce emissions is to implement a national carbon tax the goal of this article is to quantify the value of a carbon tax that will allow the achievement of the emission reduction target and to assess its impact on the economy the approach used in this work is to compare the economy before and after the implementation of the carbon tax by creating a static computable general equilibrium model of the chilean economy the model developed here disaggregates the economy in 23 industries and 23 commodities and it uses four consumer agents households government investment and the rest of the world by setting specific production and consumptions functions the model can assess the variation in commodity prices industrial production and agent consumption allowing a cross sectoral analysis of the impact of the carbon tax the benchmark of the economy upon which the analysis is based came from a social accounting matrix specially constructed for this model based on the year 2010 the carbon tax was modeled as an ad valorem tax under two scenarios tax on emissions from fossil fuels burned only by producers and tax on emissions from fossil fuels burned by producers and households the abatement cost curve has shown that it is more cost effective to tax only producers rather than to tax both producers and households this is due to the fact that when compared to the emission level observed in 2010 a 20 emission reduction will cause a loss in gdp of 2 and 2 3 respectively under the two scenarios the tax value that could lead to that emission reduction is around 26 us dollars per ton of co2 equivalent the most affected productive sectors are oil refinery transport and electricity having a contraction between 7 and 9 analyzing the electricity sector by energy source the production of electricity from fossil fuels will decrease by 11 but electricity from renewables will increase by 43 electricity producers will pass the cost of the carbon tax to the consumer by increasing the price of electricity by 8 the findings of this paper will allow policy makers to take better and more informed decisions by providing a cross sectoral analysis of the impact on the economy of reducing emissions by 20 by implementing a national carbon tax