Public Acceptance of Environmental Tax Reform an Empirical Analysis

Abstract

We add new empirical evidence to the discussion on public support for Environmental Tax Reforms (ETR). Weak support is sometimes used by politicians to reject the often heard calls by experts to increase the use of environmental taxes to remedy persistent environmental problems. This in spite of widespread support for this economic policy instrument in academic circles.

Many authors put forward the revenue neutrality of an ETR as a response to the public opinion turning against plans for a green tax reform (Hsu, 2008). However, experiences with ETR in several European countries have revealed that revenue neutrality is not well understood by the taxpayer (Thalman, 2004). Theoretical studies on the endowment effect (Knetsch, 2012) and on hyperbolic discounting (Laibson, 1997) claim that citizens apply non-rational explanations and weighting rules calculating their own wins and losses. ln most studies (e.g. Dresner, 2006), a positive correlation is found between support for ETR and trust in the government.

We test some of these correlations and hypotheses using two different Flemish surveys. Fist, we use the SCV data (official data collected on behalf of the Flemish government) for 2010 consisting of an a select sample of 1500 Flemish people. These data allow to estimate a model that explains the willingness to pay (environmental) taxes by variables as trust, environmentally friendly behaviour, being confronted with environmental degradation, knowledge about environmental policy instruments and some socio-economic variables. Secondly, the LEVO 2012 data are based on a quota sample of 1300 respondents. These data have a more experimental nature, and they allow a more detailed analysis of the willingness to pay for specific environmental policy proposals. Also, the data allow to test the relation with revenue neutrality and other compensating mechanisms (eg the use of the tax income budget).