To alleviate increasingly serious water pollution and shortages in developing countries, various kinds of policies have been implemented by local governments. It is vital to quantify and evaluate the performance and potential economic impacts of these policies. This study develops a Computable General Equilibrium (CGE) model to simulate the regional economic and environmental effects of discharge fees. Firstly, water resources and water environment factors are separated from the input and output sources of the National Economic Production Department. Secondly, an extended Social Accounting Matrix (SAM) of Jiangsu province is developed to simulate various scenarios. By changing values of the discharge fees (increased by 50%, 100% and 150%), three scenarios are simulated to examine their influence on the overall economy and each industry. The simulation results show that an increased fee will have a negative impact on Gross Domestic Product (GDP). However, waste water may be effectively controlled. Also, this study demonstrates that along with the economic costs, the increase of the discharge fee will lead to the upgrading of industrial structures from a situation of heavy pollution to one of light pollution which is beneficial to the sustainable development of the economy and the protection of the environment.
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