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Environmentally conscious consumers and voluntary tax agreements: A case of dissonance

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  • Constantatos, Christos
  • Martis, Apostolos Ioannis

Abstract

We consider voluntary agreements (VAs) in which a firm agrees to an abatement level, expecting mild emissions tax rate in return. VAs are credible if the regulator offers a time-consistent menu relating emissions tax rates to abatement, and the firm chooses its abatement and tax rate from this menu. This VA type can be problematic when consumers are environmentally conscious. As consumers’ social responsibility (SR) increases, the regulator demands a lower tax rate independent of the firm’s abatement efforts: the regulator has little to offer regarding tax-rate reductions even at moderate SR levels. Credible VAs are typically considered superior to mandatory taxation; however, for sufficiently high SR levels, mandatory taxation is superior in terms of environmental protection and welfare.

Suggested Citation

  • Constantatos, Christos & Martis, Apostolos Ioannis, 2026. "Environmentally conscious consumers and voluntary tax agreements: A case of dissonance," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325004018
    DOI: 10.1016/j.econmod.2025.107406
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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