No One Likes Taxes But Sometimes People Don't Mind
"Read my lips, there’ll be no new taxes”
George Bush accepting the Republican nomination, 1988
George Bush was simply tapping into a rich public attitudinal vein with this statement. Public aversion to increased, new or even just existing taxes, is of course one of the most universally held gripes and we have witnessed collective anger first hand in recent weeks over the carbon tax proposal in Australia.
Many economists support the concept of Pigouvian taxes (i.e. taxes on externalities, such as CO2 taxes, road usage/anti congestion charges, fossil fuel levies and so on). Conventional economic wisdom is that they are the most efficient tool to redress market failure. But theoretical elegance aside, when it comes to the nitty gritty of imposing such taxes, opposition from both industry and public has resulted in a graveyard of failed Pigouvian environmental tax proposals: For example, the French carbon tax in 2010, road pricing in Edinburgh in 2005, a tax on fossil fuels in Switzerland in 2000, the fuel tax escalator in the UK in 2000, and the US energy tax in 1993, to name just a few.
Fortunately, in recent years there has been a growing body of behavioural research examining the factors that influence public support for Pigouvian taxation, and what can be done to make such taxes more feasible. One of the most comprehensive of such studies was the eight country EU PETRAS project (2006) In this post we’ll outline some of the more pertinent learning from these studies to provide some insight as to how public support for environmental taxes can be bolstered.
So what does the research say?
Factors influencing support for environmental taxes
It seems one of the main reasons for public opposition to environmental taxes is poor understanding of the rationale behind them. Several studies from the 2006 PETRAS Pan European research project found that many people across the EU felt uninformed about environmental taxes —what they were and how they work, and this heightened already existing suspicion of government motives (Dresner et al., 2006a).
One of the promoted benefits of environmental taxes is the so-called ‘double dividend’. The rationale is that the tax burden should fall more on ‘bads’ than ‘goods’, a process that may lead to a ‘double dividend’ whereby higher taxes on energy will lower energy use and hence pollution, while lower taxes on labour will contribute to higher rates of employment. The ‘double dividend’ concept was explored in depth in the PETRAS research and though some people were sceptical that such a transfer would actually occur, conceptually the idea was appealing (Baranzini et al., 2000).
The same research highlighted a clear paradox though. There emerged a widely held belief that governments cannot be trusted to use the tax revenue to the benefit of key stakeholders (e.g. through recycling of revenues to lower employment taxes; Dresner et al. 2006a).
Interestingly across the countries surveyed for the PETRAS project, there was a strong feeling that if revenue recycling was carried out by a body independent of government, then this would increase trust and ‘willingness to pay’. The independent body would control the revenues and could certify that they really went where they were supposed to. While the feasibility of such a system might prove difficult, such suggestions highlight a salient desire of stakeholders for measures and processes that are transparent and trustworthy (Dresner et al., 2006). Here in Australia, Professor Ross Garnaut, the government's chief climate change adviser, only yesterday recommended an independent body be set up, to mandate emissions targets; though not to manage revenue recycling.
While transparent revenue recycling has appeal for some of the public and business groups, there was another point of view that emerged. For many, especially public respondents, there was a stated preference for revenue raised from environmental taxes to be spent for environmental purposes. For these people, if revenues from a tax imposed supposedly for the sake of the environment went to other purposes, then that was seen as a confidence trick. Perhaps the case is that if you do not believe environmental taxes will improve the environment by altering behaviour, then earmarking the revenues for environmental purposes might do the trick (Dresner et al. 2006; Hsu et al. 2008; Schade & Schlag, 2003; Steg et al, 2006; Thalmann, 2004).
It also seems the notion of pilot ‘trials’ for programmes may spur public and business support. In a separate study to the PETRAS project, Winslott-Hiselius et al. (2009) studied the Stockholm congestion charge trials and suggested that such trials may be a more useful tool to aid the implementing of ‘difficult’ policy measures. One explanation for this result was that trials generate tangible results that can be clearly witnessed—thus working to reduce feelings of fear and uncertainty while leaving open the possibility that the measure may be abolished if it fails.
So how can these insights inform our own tax debate? Of course attitudes and belief systems in Australia may differ somewhat. Nonetheless several of the European observations represent core ‘human truths’ and a recognition of such ‘truths’ seems to be missing from the current discourse. For example, a real fear of the unknown and the need for policy makers to assuage that fear with comprehensive but easily digestible information; the distrust of command and control systems and the resulting need to ensure tax revenue collected from constituents is clearly and transparently re-directed as benefits to the same; whether that be through environmental or tax reform.
Finally these observations point to the need to develop clear message strategies for complex policy initiatives such as a carbon tax; strategies that unequivocally convey the problem such initiatives intend to address, the end benefits such actions will deliver, and concrete ‘reasons to believe’ in both the problem and the benefits of a solution. Some might argue such clear message strategies have so far been missing from the debate.
References and further reading
Dresner, S., Dunne, L., Clinch, P., P., Beuermann, C., 2006a. Social and political responses to ecological tax reform in Europe: an introduction to the special issue. Energy Policy 34 (8), 895–904.
Dresner, S., Jackson, T., Gilbert, N., 2006b. History and social responses to environ- mental tax reform in the United Kingdom. Energy Policy 34 (8), 930–939.
Hsu, S.L., Walters, J., Purgas, A., 2008. Pollution tax heuristics: an empirical study of willingness to pay higher gasoline taxes. Energy Policy 36, 3612–3619.
Kahan, D., D., Braman, H., Jenkins-Smith, 2010. Cultural Cognition of Scientific Consen- sus, Cultural Cognition Project Working Paper No. 77, www.culturalcognition.net.
Kallbekken, S., Aasen, M., 2010. The demand for earmarking: results from a focus group study in Norway. Ecological Economics 69 (11), 2183–2190.
Kallbekken, S., Kroll, S., Cherry, T.L., in press. Do you not like Pigou or do you not understand him? Tax aversion and earmarking in the lab. Journal of Environmental Economics and Management. doi:10.1016/j.jeem.2010.10.006.
List, J.A., Sturm, D.M., 2006. How elections matter: theory and evidence from environmental policy. Quarterly Journal of Economics 121 (4), 1249–1281.
Rienstra, S.A., Rietveld, P., Verhoef, E.T., 1999. The social support for policy measures in passenter transport. A statistical analysis for the Netherlands. Transportation Research D, 181–200.
Rivlin, A.M., 1989. The continuing search for a popular tax. American Economic Review 79 (2), 113–117.
Steg, L., Dreijerink, L., Abrahamse, W., 2006. Why are energy policies acceptable and effective? Environment and Behavior 38, 92–111.
Stern, P.C., 2000. Toward a Coherent Theory of Environmentally Significant Behavior. Journal of Social Issues 56 (3), 407–424.
Stern, P.C., Dietz, T., Kalof, L., 1993. Value orientations, gender, and environmental concern. Environment and Behavior 25, 322–348.
Thalmann, P., 2004. The public acceptance of green taxes: 2 million voters express their opinion. Public Choice 119, 179–217.
Winslott-Hiselius, L.,Brundell-Freij, K.,Vagland, (2009).The development of public attitudes towards the Stockholm congestiontrial. Transportation Research Part A43(3),269–282.
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