Working along both lines? The relationship between government green publicity and emissions tax

Abstract

Emissions reduction has long been the most concerning environmental issue. To promote emissions reduction among firms, governments have adopted mandatory tools such as emissions tax and voluntary guidance such as government green publicity. This paper investigates the interaction between emissions tax and government green publicity and analyzes the optimal decisions when the government combines these two policies. The results show that these two policies are mutually reinforcing, that is, the enhancement of one leads to the enhancement of the other. Moreover, although these two policies are complements in reducing emissions, it may be not wise to combine them to improve social welfare. Specifically, when the emissions damage is small, these two policies are substitutes in improving social welfare. More surprisingly, this substitutive relationship will increase with the baseline emissions level. This suggests that governments combining these two policies may not suitable for addressing high-pollution industries. When governments combine these two policies, intuitively, the emissions tax level and publicity degree will increase with tax implement efficiency. However, the results show that when the emissions damage is relatively large, the emissions tax level and publicity degree will decrease with tax efficiency. We also find that under asymmetric firms, heightened competition will improve the social welfare and the strategic complementarity of the two policies, albeit at the cost of firms’ profits. Moreover, we analyze the influence of budget constraints, revealing that as the budget limit level decreases, the strategic complementarity can initially decline but subsequently exhibit an upward trend.