How to Turn an Industry Green: Taxes versus Subsidies
AbstractEnvironmental policies frequently target the ratio of dirty to green output within the same industry. To achieve such targets, the green sector may be subsidized or the dirty sector be taxed. We show that in a monopolistic competition setting, the two policy approaches have different welfare effects, depending on the design of the instrument (ad valorem versus unit instrument) and the initial situation (size of the dirty sector). For a strong green policy (a severe reduction of the dirty sector) a tax is the dominant instrument. If initially the dirty sector is important, then for moderate policy targets a subsidy may be the superior tool. These findings have implications for policies such as the Californian Zero Emission Bill. Copyright Springer Science+Business Media, Inc. 2005
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 27 (2005)
Issue (Month): 2 (November)
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Web page: http://www.springerlink.com/link.asp?id=100298
environmental regulation; monopolistic competition; taxes; subsidies; welfare; Zero Emission Bill;
Other versions of this item:
- Susanne Dröge & Philipp J. H. Schröder, 2003. "How to Turn an Industry Green: Taxes versus Subsidies," Discussion Papers of DIW Berlin 341, DIW Berlin, German Institute for Economic Research.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
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