Conference Agenda

How should public policy finance energy subsidies? Energy subsidies, such as renewable energy price supports or energy efficiency subsidies, are commonly financed by levies on electricity consumption: either a flat-rate household charge or an electricity price surcharge. This paper considers the efficiency and equity implications of these policies. We show that equity outweighs efficiency given expected societal preferences. An electricity price surcharge is optimal in the majority of considered circumstances, despite obvious price distortions. For a 2015/16 Irish case study, an electricity price surcharge would increase lost consumer surplus relative to a flat-rate charge by between 0.7\% to 3\%, depending on the price elasticity of demand. Under expected rates of price elasticity, this reform results in a welfare gain of \euro 8.31 for households in the first quintile of the income distribution, whilst households in the fifth quintile incur a loss of \euro 11.83 per annum. We find that while efficiency grows in relative importance as the magnitude of the subsidy burden increases, equity still outweighs the efficiency loss in many circumstances given likely societal preferences for inequality. Negative policy costs are possible under certain subsidy specifications. Should policy costs be negative, we find that a flat-rate levy is welfare-maximising under all conditions.

This paper addresses the relationship between income inequality and household sustainable consumption across 139 countries, from 1995 to 2015. First, we propose a novel proxy of sustainable consumption, measured with Environmental Goods and Services. Second, we investigate the effects of income inequality on environmental goods and services consumption per capita, by using the Gini Index and Top income shares. We perform a Grouped Fixed Effects model to estimate the Engelian and the inequality-environmental goods and services consumption elasticities. Our findings suggest that the effects of income inequality on environmental goods and services consumption are ambiguous and depend on per capita disposable income. This paper reveals a trade-off between income inequality and sustainable consumption, in line with the consumption polarization and pioneer consumer effects. Third, we investigate this trade-off by introducing a higher-order polynomial function to determine an optimal level of inequality that maximizes Engelian elasticities and thus, EGS consumption per capita.

Empirical and experimental studies show that individuals behave in environmentally friendly ways and are not entirely selfish, as is often assumed in theoretical models. However, if consumers have a propensity to voluntarily reduce emissions, then in addition to carbon pricing, environmental policy instruments that act on this intrinsic motivation can be used to regulate emissions. To shed light on this regulatory possibility, we assume a general equilibrium model with moral consumers and analyze the effects of nudges aimed at increasing individuals’ propensity to engage in environmentally friendly behavior. We show that a government that maximizes materialistic welfare will introduce a nudge if the nudge reduces moral inequality in the population, whereas a government that maximizes moral welfare will introduce a nudge if it increases moral inequality. This highlights the importance of the underlying objective function in designing optimal policies for economies with moral consumers. Moreover, in most cases the optimal nudge intensity of a free nudge is given by a corner solution, but if we additionally assume that the nudge requires research and development efforts, then interior solutions are more common.

Inspired by ideas of policymakers advocating mixed neighborhoods and the general problem of public goods benefiting some groups relatively more than others, we investigate the role of varying spatial allocations of rich and poor for the voluntary provision of public goods. We provide theoretical and experimental evidence on the importance of specific allocation patterns for increased contribution as well as redistribution among rich and poor. We find that participants do invest in others' locations, yet mainly in a way in which they themselves benefit, i.e. into the locations of their direct neighbors. We observe that rich participants transfer more to poorer clusters, however in an alternating allocation between rich and poor, these shifts are less prevalent. This study highlights the importance of the specific allocation between rich and poor in a network and suggests that making direct and indirect beneficiaries of public good provisions salient can be a way to decrease inequality.