 Subsidy reduction policies in clean product promotion: Pre-announced or dynamic?Jing Wang, Yanfei Lan, Shuxian Xu, Hongyang Zou and Huibin Du Energy Economics, 2025, vol. 142, issue C Abstract: Governments often use purchase subsidies to promote clean products, such as rooftop solar photovoltaic systems and new energy vehicles, aiming for clean development. However, purchase subsidies increase governments’ fiscal burden and create consumer over-reliance, with consumers delaying purchases in anticipation of higher future subsidies. To reduce policy costs and lessen consumers’ delayed purchases, governments attempt to implement a subsidy reduction policy that gradually reduces subsidy levels, with two options: pre-announced subsidy reduction (PS, where future subsidy plans are pre-announced) and dynamic subsidy reduction (DS, where governments announce a downward trend but adjust subsidy levels dynamically). We employ a two-period Stackelberg game model to investigate the optimal policy for promoting clean products. Both PS and DS alleviate delayed purchases, but the government’s subsidy strategies differ. Under PS, the government adopts a consistent subsidy strategy or follows a decreasing subsidy path, which lessens fiscal costs but at the expense of total sales of clean products. In contrast, under DS, the government maintains a consistent subsidy level over two periods, which rather increases the total adoption of clean products and contradicts the intuition that dynamic subsidy setting is meant for maintaining policy flexibility. Moreover, our comprehensive comparisons reveal a policy choice dilemma: the government should choose PS to prevent delayed purchases but DS to enhance the adoption of clean products. We suggest choosing the appropriate approach based on the market penetration of clean products: PS seems more favorable when sales of clean products are sufficiently high, while the opposite is true for DS. Keywords: Purchase subsidy; Subsidy reduction policy; Delayed purchases; Clean development (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:142:y:2025:i:c:s0140988325000052 DOI: 10.1016/j.eneco.2025.108182 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.