Environmental and economic effects of pay-as-you-throw waste taxation: An assessment based on difference-in-differences models

Excessive municipal waste generation remains a pressing environmental challenge in the European Union, motivating the adoption of policies such as Pay-As-You-Throw (PAYT) schemes that link household waste management fees to unsorted waste production. Rigorous evaluation of PAYT’s effects is complicated by staggered policy adoption and non-reliable parallel trends across municipalities, which can bias standard Difference-in-Differences (DiD) estimates. We address this challenge by comparing two-way fixed effects DiD, staggered DiD, and Synthetic DiD approaches. Applying this framework to the staggered PAYT rollout in the Italian region of Emilia-Romagna, we find a robust 10 percentage point increase in sorted waste collection rates on average. This shift is almost entirely due to a reduction of unsorted waste per capita, without a significant growth of sorted waste generated, aligning with the top priority of the EU Waste Hierarchy, i.e. waste prevention. Importantly, PAYT does not significantly raise the total cost of the waste management service on average, although it does involve a shift in the composition of cost components. PAYT adoption patterns point to capacity- and performance-based selection into PAYT, while the Early–Late dynamics are consistent with learning and diffusion. This study underscores the potential of PAYT as an economically viable policy instrument for municipalities and regions to advance urban waste management in line with circular economy objectives.