Green Taxes in a Post-Paris World: Are Millions of Nays Inevitable?

Abstract

Turning the Paris Agreement's greenhouse gas emissions pledges into domestic policies is the next challenge for governments. We address the question of the acceptability of cost-effective climate policy in a real-voting setting. First, we analyze voting behavior in a large ballot on energy taxes, rejected in Switzerland in 2015 by more than 2 million people. Energy taxes were aimed at completely replacing the current value-added tax. We examine the determinants of voting and find that distributional and competitiveness concerns reduced the acceptability of energy taxes, along with the perception of ineffectiveness. Most people would have preferred tax revenues to be allocated for environmental purposes. Second, at the same time of the ballot, we tested the acceptability of alternative designs of a carbon tax with a choice experiment survey on a representative sample of the Swiss population. Survey respondents are informed about environmental, distributional and competitiveness effects of each carbon tax design. These impacts are estimated with a computable general equilibrium model. This original setting generates a series of novel results. Providing information on the expected environmental effectiveness of carbon taxes reduces the demand for environmental earmarking. Making distributional effects salient generates an important demand for progressive designs, e.g. social cushioning or recycling via lump-sum transfers. The case of lump-sum recycling is particularly striking: it is sufficient to show its desirable distributional properties to make it one of the most preferred designs, which corresponds to a completely novel result in the literature. We show that providing detailed information on the functioning of environmental taxes may contribute to close both the gap between acceptability ex ante and ex post and the gap between economists' prescriptions and the preferences of the general public.

Frontiers of Climate Change Economics

“…The results in Carattini et al (2017) are also interesting for policymakers. They imply that providing detailed information on the expected effectiveness and (intra-generational) distributional implications of environmental tax reforms with the general public, reduces the widespread resistance to environmental taxes.…”

“…First, Carattini et al (2017) provide empirical explanations for the lack of public support for energy and carbon taxes. They analyse voting behaviour in a real ballot in Switzerland on replacing the current value-added tax (VAT) with an energy tax in a revenue-neutral way.…”

“…The proposal was rejected by 92% of the voters. Carattini et al (2017) used the VOX Survey by the Swiss Centre of Expertise in the Social Sciences (in which a representative sample of 1500 persons is interviewed within a month after the ballot), to assess the determinants of the observed voting behaviour. They conclude that the chances of the rejected initiative would have been much higher if tax revenues had been earmarked for environmental purposes instead of used for replacing the VAT.…”

“…At the same time, Carattini et al (2017) conducted a choice experiment in which they considered a carbon tax with four different rates (60, 90, 120 and 150 CHF/tCO 2 ) and five different types of revenue recycling (income tax rebates, VAT rebates, lump sum transfers, social redistribution, and environmental earmarking). Furthermore, they informed the participants in the choice experiments about the expected outcomes of each alternative, in terms of the energy price, emission abatement, overall economic effects, and distributional consequences (on the basis of simulations of a general equilibrium model).…”

“…Section 3 discusses two papers in the Special Issue that deal with politics of climate policy. Carattini et al (2017) study voting on energy taxes which helps to understand public resistance to environmental policy measures. Dao et al (2017) deal with the intricate issues of how to tackle intergenerational distributional consequences of climate policies.…”