A note on energy subsidies in Japan: a political economy perspective

This paper examines Japan’s energy subsidy policy through a simple political-economy framework. Standard microeconomic analyses imply that an optimal subsidy rate is zero. By contrast, in a Meltzer and Richard (1981) median-voter framework with income heterogeneity and majority voting, a positive energy subsidy may arise as a political equilibrium if the median household’s energy consumption, relative to the national average, exceeds its income share. Thus, energy subsidies may function as an imperfect form of income redistribution. Applying this condition to Japanese household data indicates that recent electricity subsidies align with political incentives predicted by the model. However, such subsidies may highlight a potential trade-off between political feasibility and economic efficiency.