This paper examines the political difficulty of enacting welfare-enhancing Pigouvian taxes. Using referenda in a market experiment with externalities, we investigate the effect of trial periods on the acceptability of two theoretically equivalent variants of Pigouvian taxes. While implementing either tax is in subjects’ material self-interest, we find significant levels of opposition to both tax schemes, though the level differs considerably. Results show that trial runs can overcome initial tax aversion, significantly increasing acceptability. The effect is robust across tax schemes, but a trial with one scheme does not affect the acceptability of the other. Trial periods also mitigate initial biases in preferences of alternative tax schemes.
- Year: 2011
- Language: English
- Series/Report: CICERO Working Paper;2011:01