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Investment Subsidies and Time-Consistent Environmental Policy

  • Lisandro Abrego
  • Carlo Perroni

We describe a model of dynamic pollution abatement choices with heterogeneous agents, where, due to the presence of a distributional objective and to the absence of incentive-compatible compensation mechanisms, the choice of a second-best level of emission taxation is time-inconsistent. In this model, we investigate whether investment subsidies can act as a substitute for policy commitment.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 99-19.

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Handle: RePEc:kud:epruwp:99-19
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  1. Agostini, Paola & Botteon, Michele & Carraro, Carlo, 1992. "A carbon tax to reduce CO2 emissions in Europe," Energy Economics, Elsevier, vol. 14(4), pages 279-290, October.
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  8. C. William Maughan & Robert J. Townsley, 1999. "What is a Good?," Journal of Interdisciplinary Economics, , vol. 10(2), pages 91-105, April.
  9. Popp, David C., 2001. "The effect of new technology on energy consumption," Resource and Energy Economics, Elsevier, vol. 23(3), pages 215-239, July.
  10. Pearce, David & Stacchetti, Ennio, 1997. "Time Consistent Taxation by a Government with Redistributive Goals," Journal of Economic Theory, Elsevier, vol. 72(2), pages 282-305, February.
  11. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Brett, Craig & Keen, Michael, 2000. "Political uncertainty and the earmarking of environmental taxes," Journal of Public Economics, Elsevier, vol. 75(3), pages 315-340, March.
  13. Jorgenson, D.W. & Slesnick, D. & Wilcoxen, P.J., 1992. "Carbon Taxes and Economic Welfare," Harvard Institute of Economic Research Working Papers 1589, Harvard - Institute of Economic Research.
  14. James M. Poterba, 1991. "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," NBER Working Papers 3649, National Bureau of Economic Research, Inc.
  15. Glenn Jenkins & RANJIT LAMECH, 1992. "Fiscal Policies To Control Pollution: International Experience," Development Discussion Papers 1992-01, JDI Executive Programs.
  16. Ian Parry, 1998. "A Second-Best Analysis of Environmental Subsidies," International Tax and Public Finance, Springer, vol. 5(2), pages 153-170, May.
  17. Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
  18. Francesco Ferrante, . "Induced Technical Change, Scientific Advance and the Efficient Control of Pollution," Discussion Papers 96/4, Department of Economics, University of York.
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