This study highlights the detrimental impact of climate shocks on firm performance and governmental tax revenue in Zambia, revealing that extreme weather events significantly curtail sales, input purchases, and tax collections. Sectors like manufacturing, retail, and construction show pronounced vulnerabilities, leading firms to reduce employment and wages, ultimately decreasing productivity. The research calls for a comprehensive consideration of these intertwined effects in developing economies.
This paper explores the intricate dynamics between climate shocks and their repercussions on firm performance and governmental tax revenue within the context of Zambia, a low-income country grappling with these multifaceted challenges. It underscores how extreme weather phenomena, including excessive rainfall and elevated temperatures, adversely affect firms’ operational outputs, leading to diminished sales, reduced input procurement, and decreased tax collection. The research reveals that sectors such as manufacturing, retail, accommodation, and construction are particularly vulnerable to these climate-induced disruptions, prompting firms to scale back on employment and wage expenses, ultimately resulting in lowered productivity levels.
The findings of this study are pivotal, as they emphasize the necessity of analyzing the intertwined impacts of climate shocks and their consequences on both the productivity of the formal sector and the fiscal health of governments in developing nations. Given that taxes on services and goods, such as Value Added Tax (VAT), constitute a substantial portion of government revenue, understanding these correlations is essential for policymaking in Zambia and similar economies facing environmental challenges.
The intersection of climate change and economic development is a critical area of study, particularly in low-income nations where the economy relies heavily on the performance of various sectors, including manufacturing and services. Zambia exemplifies the struggle against climate shocks which can severely hinder economic growth and stability. Limited capacity for domestic revenue mobilization further complicates the situation, making it essential to investigate how such climatic adversities affect firm-level outcomes and consequently the public revenue system. This paper provides a framework for understanding these effects through empirical analysis using firm-level data from Zambia.
In conclusion, the research elucidates the substantial impact of climate shocks on both firm performance and government revenue in Zambia. Extreme weather events not only stifle sales and operational capacity but also lead to lower tax collections, which poses significant challenges for public finance in a low-income setting. The interdependence between economic productivity and climate resilience highlights the critical need for effective policy responses to safeguard economic stability in the face of increasing climate threats. The findings advocate for a holistic approach to managing the repercussions of climate shocks, emphasizing the importance of supporting the formal sector to bolster income and sustainability.
Original Source: reliefweb.int
