Carbon tax recycling: Fostering reindustrialization in financialized developing economies

Magacho, Guilherme and Godin, Antoine and Spinola, Danilo and Yilmaz, Devrim (2025) Carbon tax recycling: Fostering reindustrialization in financialized developing economies. Structural Change and Economic Dynamics, 77. pp. 1-22. ISSN 0954-349X

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Abstract

Including developing countries in the low-carbon transition is essential for meeting climate goals, yet their structural specificities are often ignored in transition models. This article presents a Structural Stock-Flow Consistent (SFC) model for open developing economies, dividing production into resource-based exports, nontradable goods and services, and other tradable sectors. While SFC models highlight financial constraints, they rarely adopt a multi-sectoral perspective. Our model contributes by (1) providing a flexible framework that accommodates diverse country characteristics, balancing short-term demand with long-term structural strategies, and (2) demonstrating the limitations of carbon pricing alone in economies dependent on carbonintensive sectors. By integrating structurally distinct sectors within a monetary framework, we reveal how financial constraints stemming from structural rigidities shape transition dynamics. Our results indicate that carbon pricing’s effectiveness depends on tax revenue recycling to avert recessions and support sustainable decarbonization. This requires fostering innovation and competitiveness in low-emission industries.

Item Type:	Article
Identification Number:	10.1016/j.strueco.2025.12.008
Dates:	Date Event 11 December 2025 Accepted 23 December 2025 Published Online
Uncontrolled Keywords:	Low-carbon transition, Stock-Flow Consistent Model, Developing and emerging countries, Structural changes, Industrialization
Subjects:	CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics CAH17 - business and management > CAH17-01 - business and management > CAH17-01-07 - finance
Divisions:	Business School > Accountancy, Finance and Economics
Depositing User:	Gemma Tonks
Date Deposited:	22 Jan 2026 10:26
Last Modified:	22 Jan 2026 10:26
URI:	https://www.open-access.bcu.ac.uk/id/eprint/16823

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