Policy Trigger
Indirect tax Negative externalities
Regulation Negative externalities
Tradable permits Negative externalities
Negative advertising Negative externalities
Subsidies Positive externalities
Direct provision Positive externalities
Positive advertising Positive externalities
Antitrust laws Market power
Price caps Market power
Nationalisation Market power
Expansionary fiscal policy Recession/unemployment
Contractionary fiscal policy Inflation
Expansionary monetary policy Recession/deflation
Contractionary monetary policy Inflation
Education and training Structural unemployment/low productivity
Labour market reforms Rigid labour market
Deregulation Inefficiency
Privatisation Inefficient SOEs
Incentive-related policies Low productivity/investment
Tariffs Trade deficit/protect industries
Quotas Trade deficit
Subsidies to exporters Lack of competitiveness
Trade liberalisation Inefficiency
Fixed exchange rate Volatility
Managed float Exchange rate misalignments
Devaluation Trade deficit
Revaluation Overheating economy
Infrastructure investment Low productivity
Human capital investment Low skills/health
Microfinance Lack of access to credit
Import substitution Lack of industry
Export promotion Primary product dependence
Fair trade Producer exploitation
Foreign aid Lack of resources
Debt relief Debt burden
Desired Effect Advantages
Internalize externality, reduce output Reduces consumption/production, raises revenue
Control or reduce harmful activities Directly targets behavior, fast impact
Create market incentive to reduce emissions Efficiency, incentive to innovate
Reduce demand for demerit goods Non-coercive, raises awareness
Encourage production/consumption Increases access, supports merit goods
Ensure universal access Equity, guaranteed supply
Increase demand for merit goods Improves information, non-invasive
Promote competition Protects consumers, prevents abuse
Ensure affordability Consumer protection
Public interest in essential industries Social control, equity
Increase AD Boosts growth, reduces unemployment
Reduce AD Controls inflation
Lower interest rates to boost AD Fast implementation, encourages investment
Reduce AD Effective against inflation
Increase LRAS Improves skills, long-term growth
Increase employment flexibility Increases employment
Reduce red tape Encourages entrepreneurship
Increase efficiency Competitive pressures
Encourage work/investment Boosts private activity
Reduce imports Protects jobs, raises revenue
Limit quantity of imports Ensures limit is met
Boost exports Supports domestic industries
Encourage free trade Lower prices, more choice
Ensure currency stability Predictability for investors
Balance stability and flexibility Avoids extreme swings
Boost exports Improves competitiveness
Lower import prices Fights inflation
Enable growth and FDI Improves capacity
Boost productivity Improves quality of life
Support entrepreneurs Encourages local business
Build domestic industries Less dependency
Diversify exports Boosts foreign earnings
Ensure fair prices Improves incomes
Fund development Fills investment gaps
Free up development funds Improves fiscal space
Limitations
Regressive, may be hard to set optimal tax
Costly to enforce, inflexible
Requires monitoring, initial allocation issues
Effectiveness uncertain, slow impact
Costly, potential for overuse or inefficiency
Expensive, risk of inefficiency
May not be enough alone
Legal complexity, long process
May cause shortages, reduce investment
Risk of inefficiency, high cost
Crowding out, time lags
Reduces growth, unpopular
May cause inflation, ineffective if rates are low
May cause unemployment, affects investment
Expensive, time lag
May reduce worker protection
Risk of market failure
Loss of public control
Costly, may worsen inequality
Inefficient, retaliation risk
No revenue, encourages black market
Distorts trade, costly
Harms some industries
Loss of monetary policy control
Requires intervention
Can trigger inflation
Harms exporters
Expensive, long-term
Needs sustained funding
High default risk
May reduce efficiency
Global competition is tough
Limited to niche markets
May create dependency
Moral hazard, donor fatigue
