Aarhus University Seal / Aarhus Universitets segl

How to Turn an Industry Green: Taxes versus Subsidies

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

Environmental 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.
Original languageEnglish
JournalJournal of Regulatory Economics
Volume27
Issue2
Pages (from-to)177-202
Number of pages26
ISSN0922-680X
Publication statusPublished - 2005

    Research areas

  • environmental regulation, monopolistic competition, taxes, subsidies, welfare,

See relations at Aarhus University Citationformats

ID: 32325482