Modeling Inclusive Green Growth and Sustainable Finance through Ecotax: The Application of the System Dynamics Model in Ethiopia

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Since the introduction of climate resilient and green economy strategy, Ethiopia has developed a series of policies to meet sustainable development goals. A significant portion of climate finance (90%) in Ethiopia comes from grants and loans and the country only invests less than 2% of its GDP in climate-related expenditures. This study tried to model the implications of imposing taxes on pollution emissions on aggregate data and examine its effect on reducing pollution emissions, enhancing sustainable economic growth and social welfare using a more holistic approach in system dynamics. The findings showed that though imposing E cotax can have shortterm negative effects, in the long run, it reduces pollution emissions, enhances sustainable growth, and maintains social welfare through improved per capita income.



Inclusive Green growth, Ecotax, Sustainable Finance, Green Economy, System Dynamic