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Energy Subsidies and Policy Commitment in Political Equilibrium

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  • Pani, Marco

    (International Monetary Fund)

  • Perroni, Carlo

    (Warwick University and CESIfo)

Abstract

Because energy subsidies affect incentives to invest in energy-saving equipment and technologies, they entail a classic investment hold-up problem: once investment has taken place, policymakers will tend to overuse them, which will in turn depress investment by forward-looking agents. Reforming energy subsidies thus requires overcoming a policy commitment problem. In this paper we show that, even when commitment is feasible in principle, it may fail to materialize in a political equilibrium due to politicians’ re-election incentives. In particular, it will be those politicians who are comparatively less favorable to energy subsidies who may fail to commit to phase them out.

Suggested Citation

  • Pani, Marco & Perroni, Carlo, 2014. "Energy Subsidies and Policy Commitment in Political Equilibrium," CAGE Online Working Paper Series 208, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:208
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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/208-2014_perroni.pdf
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    Cited by:

    1. Dmytro Osiichuk, 2023. "The Obstacles to the Growth of the Renewable Energy Industry in the European Union," Sustainability, MDPI, vol. 15(19), pages 1-18, October.
    2. De Groote, Olivier & Gautier, Axel & Verboven, Frank, 2024. "The political economy of financing climate policy — Evidence from the solar PV subsidy programs," Resource and Energy Economics, Elsevier, vol. 77(C).
    3. Boudekhdekh, Karim, 2022. "A comparative analysis of energy subsidy in the MENA region," MPRA Paper 115275, University Library of Munich, Germany.
    4. Hortay, Olivér & Rozner, Bence Péter, 2019. "Allocating renewable subsidies," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 236-247.

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    More about this item

    Keywords

    Policy Commitment; Energy Subsidies;

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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