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Title:How to Turn an Industry Green: Taxes versus Subsidies PDF Logo
Authors:Dröge, Susanne
Schröder, Philipp J. H.
Issue Date:2003
Series/Report no.:DIW-Diskussionspapiere 341
Abstract:Environmental policies frequently target the ratio of dirty to green output within the same industry. To achieve such targets the green sector may be subsidised or the dirty sector be taxed. This paper shows that in a monopolistic competition setting the two policy instruments have different welfare effects. For a strong green policy (a severe reduction of the dirty sector) a tax is the dominant instrument. For moderate policy targets, a subsidy will be superior (inferior) if the initial situation features a large (small) share of dirty output. These findings have implications for policies such as the Californian Zero Emission Bill or the EU Action Plan for Renewable Energy Sources.
Subjects:Environmental policy
Monopolistic competition
Taxes
Subsidies
Welfare
Zero Emission Bill
JEL:Q28
H2
L13
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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