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Why Do Environmental Taxes Work Better in Developed Countries?

  • Coria, Jessica

    ()

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Villegas-Palacio, Clara

    ()

    (Facultad de Minas, Universidad Nacional de Colombia - Sede Medellin)

  • Cárdenas, J.C.

    ()

    (Dept of Economics, Universidad de los Andes, Colombia)

We compare of the performance of emission taxes between Colombia and Sweden in an experimental setting where subjects are regulated through environmental taxes and had to decide on emission levels, compliance behavior, and adoption of an environmentally friendly technology. Our design allows us to analyze the role of variations in the stringency of the policy enforcement by regulatory agencies in two different cultural contexts. In line with previous literature that emphasizes the role of social norms and intrinsic motivations explaining compliance behavior, we find that actual emissions and tax underreporting are lower than predicted by traditional models that are solely based on self-interested preferences. However, we find that for an equivalent monitoring stringency, there are no statistically significant differences in emission levels and compliance behavior between Colombian and Swedish subjects. This is to say that despite the positive effect of social norms enhancing compliance, a more stringent enforcement remains as an important mechanism to induce firms to comply with the regulation.

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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 521.

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Length: 23 pages
Date of creation: 03 Jan 2012
Date of revision:
Handle: RePEc:hhs:gunwpe:0521
Note: Full text file removed. If you are interested in this paper, please contact the authors.
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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  1. Inés Macho-Stadler & David Pérez-Castrillo, 2004. "Optimal Enforcement Policy and Firms' Emissions and Compliance with Environmental Taxes," UFAE and IAE Working Papers 612.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Cummings, Ronald G. & Martinez-Vazquez, Jorge & McKee, Michael & Torgler, Benno, 2009. "Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 447-457, June.
  3. Coria, Jessica & Sterner, Thomas, 2008. "Tradable Permits in Developing Countries: Evidence from Air Pollution in Santiago, Chile," Discussion Papers dp-08-34-efd, Resources For the Future.
  4. Sterner, Thomas & Turnheim, Bruno, 2009. "Innovation and diffusion of environmental technology: Industrial NOx abatement in Sweden under refunded emission payments," Ecological Economics, Elsevier, vol. 68(12), pages 2996-3006, October.
  5. Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu & Wang, Hua, 2001. "Inspections, pollution prices, and environmental performance: evidence from China," Ecological Economics, Elsevier, vol. 36(3), pages 487-498, March.
  6. Caffera, Marcelo, 2011. "The use of economic instruments for pollution control in Latin America: lessons for future policy design," Environment and Development Economics, Cambridge University Press, vol. 16(03), pages 247-273, June.
  7. Rodriguez-Sickert, Carlos & Guzmán, Ricardo Andrés & Cárdenas, Juan Camilo, 2008. "Institutions influence preferences: Evidence from a common pool resource experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 215-227, July.
  8. Charles Christian & Joel Slemrod & Marsha Blumenthal, 2001. "Taxpayer response to an increased probability of audit: Evidence from a controlled experiment in minnesota," Natural Field Experiments 00332, The Field Experiments Website.
  9. Isaksson, Lena Hoglund, 2005. "Abatement costs in response to the Swedish charge on nitrogen oxide emissions," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 102-120, July.
  10. Wang, Hua & Wheeler, David, 2005. "Financial incentives and endogenous enforcement in China's pollution levy system," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 174-196, January.
  11. Clara Villegas-Palacio & Jessica Coria, 2010. "On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits," Journal of Regulatory Economics, Springer, vol. 38(3), pages 274-291, December.
  12. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
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