The 2023 Erik Kempe Award has been given to Thomas DOUENNE and Adrien FABRE for their article
Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion
American Economic Journal: Economic Policy 14, 81-110, 2022
Abstract. Using a representative survey, we find that after the Yellow Vests movement, French people would largely reject a tax and dividend policy, i.e., a carbon tax whose revenues are redistributed uniformly to each adult. They overestimate their net monetary losses, wrongly think that the policy is regressive, and do not perceive it as environmentally effective. We show that changing people’s beliefs can substantially increase support. Although significant, the effects of our informational treatments on beliefs are small. Indeed, the respondents that oppose the tax tend to discard positive information about it, which is consistent with distrust, uncertainty, or motivated reasoning.
The Nomination Committee, composed by Thomas Aronsson (chair), Ben Groom, Åsa Löfgren, has awarded this paper for the following motivation:
There is a large consensus among economists that taxes targeting externalities constitute key environmental policy instruments. The prime example is a carbon tax designed to reduce the release of CO2 emissions and, therefore, counteract the problem of global warming. Yet, the successful implementation of a carbon tax policy (or any other environmental policy) requires that policy makers understand the relationship between the properties of a policy and its support by the general public. A recent example is the Yellow Vest movement in France and its protests against a carbon tax policy that was perceived to be unfair and ineffective. The Award-winning paper focuses on a critical aspect of the link between the properties of a carbon tax policy and its support by the general public, namely beliefs, and analyzes how people’s beliefs about the effects of a carbon tax policy affect their support for this policy.
To this end, the authors implement an innovative survey on beliefs and acceptance of hypothetical carbon tax reforms in order to disentangle the potential explanations for the low acceptance of carbon taxes following the Yellow Vest movement. The hypothetical reform is designed as a “tax and dividend policy”, where the additional tax revenues from higher carbon taxation are redistributed to the tax payers. The design of the survey makes it possible to measure people’s beliefs as well as estimate a causal effect of belief on support, i.e., how individuals’ beliefs about the effects of a carbon tax affect their attitudes to carbon taxation. Among the results, the authors find that people, on average, tend to overestimate the incidence of the tax on their own household, and erroneously believe that the policy reform is regressive as well as ineffective, all of which contribute to weaken the support for carbon taxation. The results also indicate that convincing people about the actual incidence and effectiveness could lead to majority support. Thus, the lack of support for a more stringent carbon tax policy may not primarily reflect disinterest in the climate problem or disbelief in the idea of carbon pricing; it can also reflect overly pessimistic beliefs about the properties of a particular reform. In other words, whether accurate or not people’s beliefs play a fundamental role for their attitudes to carbon taxation.
Thomas Douenne and Adrien Fabre receive the Erik Kempe Award for a novel and insightful contribution to the political economy of climate policy. By an innovative design, they are able to disentangle how people’s beliefs about the properties of a carbon tax and dividend policy affect their support for this policy. First, the authors contribute by robust evidence of casual effects of beliefs on policy support. As such, the study goes beyond the correlational evidence that earlier studies provide. Second, the study has clear practical policy relevance: if effective climate policies are to gain support, and be possible to sustain over a longer period, it is important that people’s beliefs about the effects of this policy are accurate (or at least not overly pessimistic). In other words, Thomas Douenne and Adrien Fabre have contributed to our understanding of the political economy carbon taxation as well as presented results of clear practical relevance for policy.