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© 1995 International Bank for Reconstruction and Development / The World Bank

research-article

Natural Resource Management and Economywide Policies in Costa Rica: A Computable General Equilibrium (CGE) Modeling Approach

Annika Persson and Mohan Munasinghe

Annika Persson and Mohan Munasinghe are with the Environment Department at the World Bank.

A computable general equilibrium (CGE) model is used to trace the effects of government policies on Costa Rican forests in the presence of incomplete markets. The results indicate that correcting the market failure would, as expected, reduce deforestation. More interestingly, in the presence of the market failure, lowering the tax on unskilled labor reduces deforestation because people gain employment in other parts of the economy. Taxation of other produced goods changes the incentives for deforestation. For example, a tax on agricultural products elevates the relative price of capital and shifts resources away from the capital-intensive industrial sector toward the agricultural and forest sectors; as a result, such a tax increases deforestation.


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