The impacts of carbon tax on Thai economy: the analysis using computable general equilibrium model

Climate change mitigation has become a critical global priority, and in response, Thailand initiated a 200-baht carbon tax in 2025. Understanding the macroeconomic, distributional, and environmental impacts of such a policy is therefore essential for designing effective and sustainable climate strategies. This study develops a Computable General Equilibrium (CGE) model tailored to the Thai economy, incorporating carbon emissions and carbon taxation to evaluate the nationwide impacts of the carbon tax and explore alternative revenue-recycling strategies. The model simulates the economy using a Social Accounting Matrix (SAM) based on the 2010 input-output table and energy-related emissions data. Three tax base designs—narrow (gasoline only), moderate (liquid fuels), and broad (all fuels)—are assessed under two emission pathways: the Business-as-Usual (BAU) scenario and Thailand’s Nationally Determined Contribution (NDC) scenario. To evaluate policy trade-offs, three revenue-recycling mechanisms are analyzed under both equity and efficiency considerations: direct transfers to households, income tax reductions, and increased government spending. The study yields several key findings that provide insights for carbon tax policy design in Thailand.   First, the implementation of a carbon tax across different tax bases reveals that a broader tax base results in greater emission reductions but also imposes higher economic costs. Despite these reductions, the overall level remains relatively low, indicating that Thailand is still far from meeting its national targets—underscoring the need for more stringent climate policies. On the macroeconomic front, the 200-baht carbon tax has a modest impact on GDP and stimulates investment but places pressure on household consumption. Second, the effectiveness of revenue-recycling strategies depends largely on policy objectives. Increased government spending emerges as the most efficient option in terms of supporting GDP growth. In contrast, progressive transfers are the most effective in enhancing equity, particularly for lower-income households, though they may come at the expense of economic growth. Income tax reductions tend to benefit higher-income groups and may exacerbate income inequality. Lastly, while both emission pathways—BAU and NDC—exhibit similar directional results, the NDC pathway produces more balanced outcomes due to embedded structural reforms. In comparison, the BAU scenario shows greater marginal improvements under revenue-recycling, primarily due to higher initial welfare losses and more regressive tax effects. The findings emphasize that the design of revenue-recycling mechanisms should be aligned with specific policy objectives—whether prioritizing equity or efficiency. A key policy implication is that the observed increase in gross fixed capital formation indicates the need for the government to prioritize investment in relevant sectors to support long-term sustainable growth. Furthermore, to improve the effectiveness of increased government spending, public expenditures should be more precisely targeted to enhance policy outcomes. Finally, future research should consider hybrid or mixed revenue-recycling strategies, as they may offer a balanced approach that promotes both economic efficiency and social equity—providing a practical and inclusive path forward for Thailand’s climate and economic development goals.