This paper examines the effects of climate shocks on firm performance and tax revenues in Zambia’s formal sector. It reveals that extreme weather events disrupt sales and tax collection, particularly in key economic sectors, leading to decreased employment and wages, thereby threatening overall productivity. The research calls for integrating climate considerations into economic policy and firm operations in developing countries.
The UNU WIDER Working Paper 2024/71 presents a critical analysis of the interplay between climate shocks and economic resilience in Zambia’s formal sector. This study, authored by Kwabena Adu-Ababio, Evaristo Mwale, and Rodrigo Oliveira, utilizes firm-level data to explore how extreme weather events, such as excessive rainfall and high temperatures, adversely affect firm performance and government tax revenues. Key findings indicate a significant decline in sales, input purchases, and tax collections, particularly within crucial sectors including manufacturing, retail, accommodation, and construction. In response to these climate challenges, firms faced heightened pressures, prompting reductions in employment and wage levels due to diminished productivity. The research emphasizes the urgency of incorporating the dual impact of climate shocks into governmental fiscal planning and firm management strategies in developing nations, especially where tax revenues from goods and services constitute a substantial portion of national budgets.
The increasingly prevalent challenges posed by climate change are particularly pronounced in low-income countries like Zambia, where economic resilience is often compromised by the dual constraints of climate shocks and inadequate domestic revenue mobilization. Historically, studies have addressed these issues in isolation; however, recent research underscores the necessity of examining their combined effect. By focusing on Zambia’s formal sector, the paper sheds light on the systemic vulnerabilities that arise when climate phenomena intersect with economic activities, especially in sectors heavily reliant on stable environmental conditions.
In conclusion, the findings outlined in UNU WIDER Working Paper 2024/71 illuminate the critical relationship between climate shocks and economic performance in Zambia. The study highlights that extreme weather conditions lead to significant declines in firm-level productivity and government tax revenues. Therefore, it is imperative for policymakers and stakeholders to develop comprehensive frameworks that address the impacts of climate change on both the economy and public finances to foster resilience in low-income settings.
Original Source: reliefweb.int
