The UNU WIDER Working Paper 2024/71 reveals that climate shocks significantly hinder firm performance and tax revenues in Zambia, particularly affecting the manufacturing, retail, accommodation, and construction sectors. Extreme weather leads to reduced sales and employment, necessitating a closer examination of the economy’s resilience to climate events.
The UNU WIDER Working Paper 2024/71 titled “Climate Shocks and Economic Resilience – Evidence from Zambia’s Formal Sector” presents a thorough investigation into the effects of climate-related disturbances on business operations and tax revenues in Zambia. The authors, Kwabena Adu-Ababio, Evaristo Mwale, and Rodrigo Oliveira, analyze firm-level data and elucidate how extreme weather conditions, including excess rainfall and elevated temperatures, have adversely affected multiple sectors, namely manufacturing, retail, accommodation, and construction. The evidence indicates that such climate shocks cause a considerable decline in sales, input acquisitions, and consequently tax collection, resulting in firms laying off employees and reducing wages due to lowered productivity.
Low-income countries, including Zambia, grapple with the dual challenges of climate shocks and inadequate revenue generation. However, studies that concurrently address the impacts of environmental changes and economic resilience have been scarce. This working paper aims to bridge that gap by focusing on how climate extremes influence firm performance and government fiscal capacity in a developing context. Recognizing that taxation on goods and services, particularly Value Added Tax (VAT), comprises a significant portion of government income underscores the importance of this research.
In conclusion, the findings from this study underscore the imperative for policymakers to evaluate the interplay between climate shocks, firm productivity, and tax revenue. The adverse effects on employment and wages highlight the vulnerabilities within the formal sector and indicate a pressing need for strategic measures that enhance economic resilience against climate-related challenges. Addressing these interconnected issues is vital for fostering sustainable development in low-income settings.
Original Source: reliefweb.int