An analysis of the potential impact of carbon emission tax on unemployment in South Africa

Abstract

This study sought to investigate the impact of carbon emission tax on unemployment in South Africa. This particular focus of the study comes at a time when the South African unemployment rate is at a staggering 27.5% (Statistics South Africa, 2018) . Moreover, South Africa is ranked the largest emitter of carbon dioxide in the continent (Boden, et al., 2011 ). To shed light on this fundamental research question, the VAR econometric technique was applied using time-series spanning the period 1980 - 2017. In addition to general tax revenue used as a proxy variable for carbon emission tax, other variables captured in our econometric specification included real GDP, household consumption, electricity power consumption, carbon emission and foreign direct investment outflow. Our empirical results showed a negative relationship between our key variables of interest namely carbon emission tax and unemployment. This implies that on average any increase in carbon emission tax tends to exert a decreasing effect on unemployment. These results therefore stress the need for the government and policy makers to ensure that carbon tax policy in South Africa is well calibrated to optimize its effect on unemployment. The rest of the variables registered expected and theoretically consistent relationships with unemployment.