Environmental policies with the excess burden of public funds and privatisation

Doori Kim and Sang‐Ho Lee

Australian Economic Papers, 2024, vol. 63, issue 2, 329-349

Abstract: This study investigates the interaction of environmental policies with the shadow cost of public funds and the efficiency of green research and development (R&D), while considering the presence of a public firm. In the policy combination of emission taxes and green R&D subsidies, we find that it has an implementable region where the shadow cost is neither high nor low, but the green R&D efficiency is high. We also demonstrate that the privatisation of public firms decreases the rates of both emission taxes and green R&D subsidies under a single policy regime. This increases (decreases) the implementable region of the policy combination of the emission tax (green subsidy) and is only implementable in the presence of a public firm. Finally, privatisation is shown to increase welfare when the shadow cost is lowest and green R&D is less efficient. These findings highlight that public ownership substitutes for environmental policies, while the shadow cost of public funds and the green R&D efficiency are critical when privatising public firms.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecp:v:63:y:2024:i:2:p:329-349

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