Who should the government support for greater sustainability improvement, manufacturers or consumers?

Abstract

Environmental issues have become a well-discussed topic among these years. Governments from various countries releases a lot of policies such as tax credit to promote manufacturers to make sustainability efforts. Also, they will offer consumers some subsidy to stimulate them to choose more sustainable products. In this paper, we analyze the different effects of tax credit and subsidy, to find out which policy has more positive influence. We find that only when the tax credit is relatively high, the manufacturer will accept it and make more sustainability effort. We also try to figure out if the more tax credit or subsidy is, the better social welfare will be, and we have a counterintuitive conclusion with numerical analysis: when the fixed subsidy is smaller than the threshold, social welfare will have a period of falling down with the increasing of the subsidy.