Unfare Solutions: Local Earmarked Charges to Fund Public Transport

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Social cushioning represented, by design, the most progressive redistribution form. The third main strategy for the use of tax proceeds is to cut other taxes and secure in this way full or partial revenue neutrality. This is in contrast to many economists, for whom using tax revenues to reduce distortionary taxes is the ideal solution. Goulder, Qualitative studies offer possible explanations for people's resistance to this third strategy. One reason for public opposition is that voters do not necessarily buy into the logic behind the double dividend.

Unfare Solutions: Local Earmarked Charges to Fund Public Transport - CRC Press Book

Focus groups with voters in Denmark Klok et al. They perceive these to be separate problems requiring separate solutions. This puts the onus on the tax authorities to introduce commitment devices that reassure the public that the promised use of revenues would be maintained. Once the policy is implemented, governments could use information devices to increase the visibility of the tax shift. The growing empirical understanding of public attitudes toward environmental taxation can enable policymakers to design carbon taxes in a way that is more acceptable to voters.

Below we offer some concrete design options that appear particularly promising to increase public support. That is, while these suggestions may make implementing a carbon tax easier, they all come with an efficiency cost. Our purpose is to increase the probability that a carbon tax is passed into legislation, in a world in which still too often carbon taxes are rejected, or do not emerge, because of lacking public support. Hence, in our perspective, an imperfect carbon tax may still be better than no carbon tax at all. That said, we encourage policymakers to strive, everything else equal, for the design that minimizes the cost for society.

Policymakers should not accept, passively, the existence of information asymmetries and biased perceptions. Policymakers should take a proactive stance and address these asymmetries.

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We provide specific suggestions in this respect. Some of the options that we consider in the following sections may be implemented in conjunction; others are mutually exclusive. Regardless of which are used, the proposed carbon tax will require extensive information sharing and careful communication, both before and after implementation, to build continued trust and credibility. We review the suggestions in turn. By phasing in carbon taxes gradually, policymakers can take advantage of the fact that aversion tends to abate once people have experienced a policy.

Taxes can then be raised progressively until they reach the level required to meet the environmental objective. Note that this may imply renouncing to allowing the carbon tax rate to fluctuate depending on the business cycle, although this type of flexibility might be welfare improving cf. Doda, The risk with this strategy is that carbon taxes may be frozen at a level that is not sufficient to achieve their intended objectives.

There are two potential, and complementary, solutions to overcome this risk. The first solution relies on societal learning. The second solution uses commitment devices. Societal learning about the exact costs and benefits of the tax can overcome potential resistance since public acceptability tends to increase the more experience people have with carbon taxes.

It is important that governments provide detailed information on the achieved reductions in greenhouse gases, but also that they highlight local cobenefits such as reduced congestion and improved air quality.

The most common device is declaring explicit tax schedules to raise carbon tax rates. Switzerland sets emissions objectives in its CO 2 Act Nachmany et al. If predefined intermediate objectives for the emission reduction pathway are not met, the Swiss carbon tax rate, which covers only thermal fuels, can be increased by the government without consulting the legislator Baranzini et al.

Voters have a preference for earmarking tax revenues and using the proceeds for additional greenhouse gas emissions reductions. They believe additional government support to help them reduce emissions is necessary. The demand for environmental earmarking may decrease over time as people observe the impact of the tax and update their beliefs. Governments can again support this process by providing effective information about emissions trends, the distributional effects of the tax, and any ancillary benefits.

Revenues may then be freed up gradually to address other sources of voter aversion, or to obtain economic gains. Tapering the degree of earmarking can also allay a government's concerns about fiscal management.

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The earmarking of tax revenues is controversial among fiscal experts because it complicates fiscal management. Carbon taxes can be made more acceptable if tax revenues are used to address important societal concerns. The scope for redistributing tax revenues could increase over time, as higher tax rates are phased in per option 1 and as the demand for earmarking decreases per option 2.

While the objective of a carbon tax is to address the climate externality, and not to address the issue of raising inequalities, there may still be the expectation that carbon taxes are designed in a way that at least does not lead to a more unequal distribution. To allay those fears, governments can use commitment devices, such as explicit plans on how revenues are to be redistributed.

For instance, the Ministry of Finance in British Columbia is required by law to make explicit its plans every year, which are then approved by the Legislative Assembly. Annual reports can make redistribution transparent by providing regular updates on how revenues are used. Redistribution can also be made directly visible to the general public, for instance, by issuing explicit rebate cheques to households and firms.

In all cases, governments would maintain the option to lower other social security measures as a result of the implementation of a carbon tax. This option suggests that there is no perfect way to allay people's concerns. At the same time, we note that by lowering other social security measures, governments would likely need the support of the legislative bodies, which can be assumed, in the general case, to be attentive to the concerns of their constituencies.

A final suggestion applies to all efforts to implement a carbon tax, regardless of the use of revenues, or level of stringency. It concerns information sharing. This disclosure would ideally occur before voters are called to a ballot, or before lawmakers consider a carbon tax bill in the parliament.

Providing rigorous analytical information through different, trusted channels and devices may ensure that the public debate about the effects of a carbon tax is based on the best available evidence. Important analytical results governments or a trusted and independent institution may wish to share include: The greenhouse gas reductions likely to be achieved at the chosen rate, and those achieved if tax rates are increased over time.

Any local cobenefits, such as reduced congestion, air pollution, and health costs, improved atmospheric visibility and quality of life. Expected variation in cost for the goods most likely to be affected by the tax. Expected impact on the economy, including potential job losses or gains, along with simple explanations on the dynamics leading to the emergence of a double dividend, if any. Both Carattini et al. One of the CCL's main activities is communicating the functioning of the carbon tax to the general public. General equilibrium effects on jobs, and economic output, are also provided, with variation at the regional level.

These findings come from two preliminary consulting studies.

Nystrom and Luckow evaluate the effect of a carbon fee and dividend on different sectors and regions in the United States. Unmel examines household consumption expenditures along different dimensions including income, race and location and measures the potential effect of the carbon fee and dividend in a static environment.

Clear communication strategies can also help to counter some of the claims that opponents of the tax may put forward. If voters are able to correctly evaluate the competitiveness risks to which firms are exposed, they are more likely to support reasonable carbon tax rates and vote against unjustified exemptions. Participants in a similar focus group organized in Denmark argued for a system rewarding polluters based on their efforts to become greener Klok et al.

Unfare Solutions: Local Earmarked Charges to Fund Public Transport

Communication efforts need to continue once the policy is implemented. Perceptions of a carbon tax may improve over time. The evidence that we mentioned above comes, however, from British Columbia, where the local government is committed to providing regular information on the tax to the population.

Without this type of device, perceptions—and awareness—of carbon taxes may remain unchanged.

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For example, a survey by Baranzini and Carattini , administered in , suggests that a surprisingly large proportion of the population may not be aware of the carbon tax on heating fuels that the Swiss government introduced in Even fewer people seem to be aware that the revenues from this tax are redistributed lump sum to households, through automatic reduction in mandatory health care bills, in which this information is reported in fine print. According to a survey by INFRAS , only a quarter of the 1, respondents interviewed were aware of the mode of redistribution.

Because the effects of carbon taxes are often not visible, governments are encouraged to measure their effects regularly and inform their citizens about them transparently. The provision of annual reports that include plans on how revenues have been redistributed in the past and how they will be distributed in the future provides evidence of transparency, credibility, and commitment of a government to execute a carbon tax as originally intended. A world without carbon tax is by definition not observable, once the carbon tax is implemented.

Communicating the effect of a carbon tax may therefore be difficult when greenhouse gas emissions increase from year to year, but would have increased even more without the tax. Communication strategies need to be adapted to the fact that the general public may have little familiarity with the empirical toolkit of policy evaluation. Similar adjustments may need to be undertaken also ex ante, if greenhouse gases are expected to increase.

Communication strategies also need to be tailored to the context in which they are used. Who provides this information, and how it is framed, may matter for acceptability. Communication strategies may need to be adapted to the beliefs and worldviews of the targeted population Cherry et al.