Budgetary interests and the degree of unbundling in electricity markets — An empirical analysis for OECD countries

The degree of liberalization in OECD electricity markets varies considerably across countries. Commonly, these differences are explained by diverging economic developments and varying political systems. The empirical estimations reported in this paper, however, suggest another reason: The more a step towards full competition in the electricity sector reduces the tax revenues generated by this industry, the less likely is its implementation. We conjecture that this relationship is especially caused by the persistent financial dependency of regulatory decision-makers on governments, which results in authorities that shrink from reforms which reduce the executive's and hence their own financial ressources. In this case, a clear delineation of a regulator's budgetary interests from its regulatory goals is vital to achieve the latter.