Working Paper Series, Department of Economics, Uppsala University
No 2004:8:
Allocation and Ex Ante Cost Efficiency of a Swedish Subsidy for Environmental Sustainability: The Local Investment Program
Maria Vredin Johansson ()
Abstract: We evaluate the allocation rationality and ex ante cost
efficiency of a major Swedish investment subsidy program, the “Local
Investment Program” (LIP). The LIP, effective between 1998-2002, had dual
purposes: to step up the pace at which Sweden transforms into an
ecologically sustainable society and to reduce unemployment. During the
program period, more than 6.2 billion Swedish kronor (approximately Euro
670 million) were granted to different municipal projects. By using data on
the projects’ subsidies and anticipated environmental and employment
effects, we find that these effects to a high degree explain the magnitude
of the subsidy granted. We find that the marginal LIP subsidy for carbon
dioxide (CO2) reductions does not vary significantly over the projects,
implying that the LIP was cost efficient for such reductions. Furthermore,
for a majority of the projects, the marginal subsidy for CO2 reductions was
lower than the, at the time, prevailing CO2 tax. Assuming successful
project fulfillment, we conclude that the LIP was a low cost, cost
efficient environmental policy for reducing CO2 emissions provided that the
projects generate spillover effects large enough to justify the subsidy.
Keywords: Environmental policy; evaluation; greenhouse gas; spillover effect; subsidy; (follow links to similar papers)
JEL-Codes: Q56; Q58; (follow links to similar papers)
26 pages, June 21, 2004
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