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Do you not like Pigou, or do you not understand him? Tax aversion and revenue recycling in the lab

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  • Kallbekken, Steffen
  • Kroll, Stephan
  • Cherry, Todd L.

Abstract

Tax-aversion reduces the likelihood that price rationing can be a politically viable tool for environmental protection. We examine the case of the classic Pigouvian tax to control a negative externality, and consider how recycling the revenues, labeling of the tax and information about its purpose affects the support for taxation. We test the support for taxation within a single-price market experiment, in which purchases by some buyers impose external costs on others. Observing behavior consistent with tax-aversion, we also find that recycling the revenues to more narrowly targeted groups seems to increase support for taxation. In the absence of narrow revenue recycling, labeling a Pigouvian instrument as a 'tax' may significantly lower the likelihood of voter support.

Suggested Citation

  • Kallbekken, Steffen & Kroll, Stephan & Cherry, Todd L., 2011. "Do you not like Pigou, or do you not understand him? Tax aversion and revenue recycling in the lab," Journal of Environmental Economics and Management, Elsevier, vol. 62(1), pages 53-64, July.
    • Handle: RePEc:eee:jeeman:v:62:y:2011:i:1:p:53-64
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