‘No taxation without hypothecation’: towards an improved understanding of the acceptability of an environmental tax reform

Abstract

Although it is widely acknowledged that taxation is a powerful instrument for combating environmental problems, environmental taxation is still underused. Public acceptability of regulatory taxes appears to be low, to the extent that a trade-off between the acceptability and the efficiency of policy instruments can be observed. This paper examines the determinants and conditions for public support and willingness to pay for environmental taxation, based on survey data of 1308 citizens. The results show that education and environmental awareness are determinants for support, and that initial low support can be significantly improved by earmarking the tax revenues to the environment. Other ways of revenue recycling, such as an environmental tax reform, can be ranked based on acceptability. We call this ranking the ‘Ladder of Acceptability of Revenue Recycling Options’ (LARRO). Well-chosen design options for the environmental tax reform can further improve its acceptability.

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