Assessing the Impact of Carbon Taxation on Productivity Indicators Using a System Dynamics Approach: Evidence from Iran
Keywords:
Carbon Tax, Green Tax, Productivity, Economic Welfare, System Dynamics, Environmental Policy, IranAbstract
This study aims to evaluate how carbon taxation influences productivity indicators in Iran by modeling the dynamic interactions among carbon emissions, green tax revenues, economic welfare, and productivity over time. The research employs a quantitative simulation framework based on system dynamics modeling. Annual macroeconomic time-series data for Iran covering the period 1992–2020 were used, including gross domestic product, carbon emissions, green tax proxies, government budget components, inflation, investment, population, productivity, and interest rates. The model was implemented in Vensim and constructed around endogenous feedback loops linking environmental taxation, fiscal capacity, welfare, and productivity. Six policy scenarios were simulated, capturing alternative trajectories of GDP growth, carbon emission changes, and green tax adjustments, including both historical and forecast horizons. Model validation procedures included structural verification, sensitivity analysis, and consistency testing. Simulation results indicate that productivity responds primarily through a welfare-mediated channel. A sustained 3% increase in GDP generated rising green tax revenues, higher economic welfare, and long-term productivity growth. In contrast, an 11% increase in carbon emissions reduced welfare and productivity despite marginal tax revenue gains. A 2.5% increase in green taxation improved both welfare and productivity by reducing pollution and strengthening human capital conditions. Forecast scenarios confirmed that growth combined with green taxation promotes productivity, while emissions growth alone exerts limited positive economic influence. The productivity trajectory is therefore highly sensitive to fiscal–environmental policy design. Carbon taxation, when integrated into a coherent fiscal framework, functions as both an environmental policy tool and a driver of productivity growth by strengthening economic welfare and supporting sustainable development pathways.
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Copyright (c) 2025 Zeinab Mosavari Nezam Abad (Author); Sayyed AbdolMajid Jalaee Esfandabadi; Mohsen Zayandehroodi (Author)
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