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

Steffen Kallbekken, S Kroll, TL Cherry

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.

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