Energy Subsidies and Policy Commitment in Political Equilibrium

Marco Pani and Carlo Perroni
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Marco Pani: International Monetary Fund

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

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.

Keywords: Policy Commitment; Energy Subsidies (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-pol
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http://www2.warwick.ac.uk/fac/soc/economics/resear ... 208-2014_perroni.pdf

Related works:
Journal Article: Energy subsidies and policy commitment in political equilibrium (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:208

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