Are carrots as good as sticks? Ex ante efficiency of a Swedish environmental subsidy programme

Abstract:

We evaluate the ex ante efficiency of a major Swedish investment subsidy programme, the local investment programme (LIP). The LIP, effective between 1998 and 2002, had parallel purposes: to step up the pace at which Sweden transforms into an ecologically sustainable society and to reduce unemployment. During the programme period, €670 million were granted to different municipal projects. We find that the marginal LIP subsidy to the largest beneficial environmental variable, reductions of carbon dioxide, does not vary significantly over projects, implying that LIP subsidy was efficiently allocated for such reductions. The beneficial variable with largest economic significance was, however, the employment variable.