Experimental Evidence on the Effect of Revenue-Recycling upon Carbon Taxation

• In Event: Policy Feedback, Conflict and Process Tracing

Abstract

Policy-feedback theory claims that policies affect the political system, in the respective area and more broadly, by influencing capacities, interests and behavior of elites and the mass public. We contribute to this research by examining one of the most challenging taxation issues in modern economies, namely carbon taxes. Most economists and many policy-makers regard carbon taxes as a highly useful policy-instrument for reducing greenhouse gas emissions, primarily from a cost-efficiency perspective. But current mitigation policies rely heavily on measures other than carbon taxes because of severe political opposition to levels of carbon taxation that could actually lead to the behavioral changes required for reaching the two degrees target. Recent research and policy debate has focused on how carbon tax income could be recycled in ways that could make even high carbon taxes politically feasible in terms of sufficient voter support. One very appealing idea in this regard is to build redistribution mechanisms into a carbon tax scheme. Such mechanisms would transfer some income from those parts of the electorate that are presumably more supportive of climate policy to those parts that are less supportive. We implemented a survey experiment in Germany and the United States (N=3650 each) to examine whether such a policy design would indeed have the desired effects on public support. In our experiment, participants received randomly assigned information about the effects of a carbon tax on their own income, on other societal groups' incomes, and on how certain uses of the tax revenue would affect the respective participant’s and others incomes. The results show that such a policy-design affects carbon politics by affecting interests, but is unlikely to be politically feasible, neither in more climate-friendly Germany nor in the more climate-skeptical United States. While richer parts of the population are generally more supportive of climate policy, their support for carbon taxes decreases drastically as they become aware of personal income implications. Conversely, support for carbon taxes among poorer parts of the population, who are generally less supportive of climate policy, does not increase significantly even when they are made aware of neutral or positive personal income effects of a carbon tax with revenue recycling. The main policy implication is that even smart revenue-recycling is unlikely to create sufficient public support for making an effective carbon tax politically feasible. The main implication for policy-feedback research is that survey experiments can provide useful insights into the causal effects of policy-designs on politics in the respective area.

Authors

• Liam F. Beiser-McGrath, ETH Zürich

• Thomas Bernauer, ETH Zurich