The macro-economic and CO2 emissions impacts of COVID-19 and recovery policies in China

Shiqi Jiang; Xinyue Lin; Lingli Qi; Yongqiang Zhang; Basil Sharp

doi:10.1016/j.eap.2022.10.008

The macro-economic and CO₂ emissions impacts of COVID-19 and recovery policies in China

Econ Anal Policy. 2022 Dec:76:981-996. doi: 10.1016/j.eap.2022.10.008. Epub 2022 Oct 19.

Authors

Shiqi Jiang¹, Xinyue Lin¹, Lingli Qi², Yongqiang Zhang³, Basil Sharp²

Affiliations

¹ School of Economics and Resource Management, Beijing Normal University, Beijing 100875, China.
² Energy Center, University of Auckland, New Zealand.
³ School of Public Finance and Taxation, Zhejiang University of Finance and Economics, China.

Abstract

The outbreak and ongoing evolution of the COVID-19 pandemic have dramatically impacted economic development and CO₂ emissions. China is under simultaneous pressure to recover from the outbreak and meet its carbon reduction targets, and the government is endeavouring to stimulate economic recovery through fiscal and monetary policies. This paper uses a computable general equilibrium model to measure the impact on China's economic recovery and carbon emissions by incorporating the pandemic shock and related economic recovery policies of loan prime rate (LPR) and value-added tax (VAT) reduction. The study found that COVID-19 led to a simultaneous shock on China's supply and demand sides in which GDP dropped by 2.62% and carbon emissions fell by 2.53%, compared to the period prior to COVID-19. Although the LPR and VAT reduction effectively mitigated economic loss, the combined LPR and VAT reduction had a more substantial effect on boosting GDP than the single policies. The VAT cut expands production and was used to overcome supply-side shocks, while lowering LPR mitigates the damage of demand-side shocks. Compared to the VAT reduction policy, reduced LPR has smaller carbon emissions per unit of GDP output. Consequently, we recommend that the government concentrate on a combination of policies to navigate pandemic shocks, as the two economic stimulus policies are confirmed to complement one another in terms of strengths and shortcomings.

Keywords: CGE model; CO2 emissions; COVID-19; Economic recovery policies.