Energy subsidies and policy commitment in political equilibrium

Marco Pani and Carlo Perroni

Energy Economics, 2018, vol. 71, issue C, 149-160

Abstract: Because non-renewable energy subsidies affect incentives for investing in energy-saving technologies, they entail a classic investment hold-up problem: once investment has taken place, policymakers will tend to overuse them for distributional reasons, 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, 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)
JEL-codes: D7 D9 H1 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Energy Subsidies and Policy Commitment in Political Equilibrium (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:71:y:2018:i:c:p:149-160

DOI: 10.1016/j.eneco.2017.12.013

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