Inequality perceptions and preferences for carbon taxation

Authors – David Hope, Julian Limberg, Yves Steinebach.

Abstract :

This paper explores the intersection of inequality dynamics and preferences for carbon taxation. More specifically, we investigate whether rising levels of inequality in recent decades in the advanced democracies have created an unfavourable policy environment for carbon taxation. If the distributive implications of (typically regressive) carbon taxes matter to citizens, then perceptions that inequality has increased are likely to act as a drag on public support for taxing carbon. This could help shed new light on the puzzle of why public support for carbon taxes remains so low, even in the face of growing support among the public for tackling climate change. We provide new causal evidence on the effect of inequality perceptions on carbon tax preferences through a set of randomized, information provision survey experiments with representative samples in four OECD countries: Italy, Germany, Norway and the UK. The selected countries cover a range of political-economic institutions and inequality trajectories, which enables us to draw more generalisable conclusions. Our interventions provide factual information to respondents about rising inequality levels in their country, which we expect to increase levels of perceived inequality. We then look at the effect of our information treatments on support for carbon taxation to ascertain whether (higher) perceived inequality reduces support for carbon taxation. Furthermore, we test whether the treatment effect varies depending on different tax policy design choices. In particular, we explore whether carbon tax policy designs that are less regressive, such as accompanying the tax with a lump-sum rebate or ear-marking revenues for policies targeting lower-income households, can lessen the effects of inequality perceptions on the demand for carbon taxation.