3 ms·
Subsidy is more efficient than taxes - based on undergrad economic theory - but it somewhat disregards exactly where the money for the subsidy comes from (at wh
by zaroth 8y ago
Subsidy is more efficient than taxes - based on undergrad economic theory - but it somewhat disregards exactly where the money for the subsidy comes from (at what cost to something else?) so reality will be different.
But I will say one thing for subsidy is it allows startups to enter a high tech space and take them as a funding source, ideally in proportion to how well the tech works.
Cap and trade can work out similarly (like Tesla selling their credits) to fund the R&D.
But the point is you want to do more than just tax the externality, if you can subsidize R&D by startups which fundamentally shifts the curve rather than just trying to move along it.
- Jeff_Brown 8y agoIF the government happens to choose the right technology to subsidize, then a subsidy is efficient. Suppose they pump a lot of money into wind, and then someone discovers a solar solution that's cheaper. That giant investment will have been wasted. By contrast, a tax lets researchers competing on a level playing field find the right substitute.
- Jeff_Brown 8y agoAlso, a subsidy does nothing to reduce consumption before the subsidized substitute takes effect, which could be decades.