Subsidy Reform and Sustainable Development

Political Economy Aspects

image of Subsidy Reform and Sustainable Development

Unsustainable subsidies are pervasive in the industry, agriculture, transport and energy sectors of most OECD countries. They are expensive for governments and can have harmful environmental and social effects. Eliminating these supports requires comprehensive approaches which are supported by top political leadership, transparent in their potential effects on all parties, consistent over the long-term, and often accompanied by transition supports. This volume uses sectoral case studies to illustrate that achieving change in structural policies such as subsidies depends largely on good governance practices.




Too often government interventions in markets are driven or co-opted by parochial political interests. The results can be damaging on many levels. In addition to their very large fiscal cost, politically driven subsidies can impede the attainment of social or environmental goals, and hinder the ability of new and emerging industries to compete fairly in the marketplace. Using the example of federal subsidies to the United States energy sector (in mid-2006), this paper discusses the scale and origin of the subsidy problem, and presents a number of strategies that can help address structural deficits in the current system of governance.


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