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# 3.2 Implications **of Reforms for the** Printing and Publishing Sector

# 3.2.1 Which Government Level Should Try to Improve Abatement Efficiency?

Abatement efficiency is a critical variable for the success of pollution control policies. Improvements in abatement efficiency could be a very successful policy as illustrated by Table 3. A tenfold increase in abatement efficiency could reduce pollution by 23% more while reducing output, as compared to a situation without pollution control, by only 3% instead of 21%. This stems from the fact that the maximum share of capital to be allocated to pollution control is cut from 67% to 17%. Social welfare will be maximized at levels of investment in abatement somewhat lower: 28% for an X of 0.5 and 11% for an w of 5.

These results suggest that the government should consider subsidies to the research in this area or assist the firms in acquiring more efficient abatement technology. It is unlikely, however, that the states will be willing to make the effort. Table 3 shows that, assuming that states only care about revenue, states would be better off with low efficiency abatement technology. A tenfold improvement in technology would cut the combined net VAT and pollution tax revenue to just over a third of what it would be without the improvement. In fact, the new revenue would be even somewhat lower than without any investment in abatement. This revenue erosion mostly reflects the reduction in pollution and in the optimal pollution tax rates."3 If state monitoring Costs were also important, they would further erode revenue as the optimal monitoring rate implied by the FEPA's position is more than twice the original requirement.

In sum, if a subsidy could contribute to the improvement of abatement efficiency available to firms, it should be considered by the Federal government rather than by the states. It should, however, compare the degree of improvement in technology to the cost of the subsidy. Doubling abatement efficiency would not achieve much in absolute reduction in pollution. But if the cost of a subsidy represents less than 8% of the current value added, it may be worth to consider it because doubling the original abatement efficiency would increase output by 8%.14

**13. Tho optimal** pollution **tax** rte is the rate rquired to cut pollution to 0 whenthc SEPAs are monitoring perfectly (100%).

14. An additional, mnybe nore audacious, conclusion from the samne data would recommend an approach to the selection of firms to monitor within a specific sector. Asunme that the technical coefficients-i.e. the marginal productivity of capital-for all the firms in the sector are the samt. Asme aloO that **fiwns** only **vary** in **terms** of pollution intensity. Ten **Table** 3 implies that the **firns** for which the increase in abatement efficiency can be the largest should be more likely to **be monitored** because **stte** monitoring requirements increase with abatement efficiency. In practical terms, this means that the SEPAs should keep firms with older capital in closer check than firms with more recent capital if it is likely to be less polluting. It also implies that if a subsidy is to be allocated for investment, they should go to the older firms first if they have the same narginal productivity of capital as the tnore recent firms.