On the Acceptability of the Ambient Tax Mechanism: An Experimental Investigation

Abstract

Our objective in this paper is to assess the acceptability of the ambient tax. Concretely, we ask subjects to choose between (A) an ambient tax and (B) an individual tax system. In case (A), they actually participate in a game in which their payoff depends on all participants' decisions and on natural variability as would be the case in the real world if an ambient tax was implemented. In case (B) they simply earn a sure payoff, which is supposed to reflect their maximal profit under the individual tax system. We take the percentage of agents preferring the ambient tax to a given sure payoff level as an indicator of the acceptability of the ambient tax given this sure payoff level. Our experimental results mitigate the common belief that ambient taxes are totally unacceptable. If the sure alternative to the ambient tax policy is very costly for the polluters, for example because it involves high inspection costs, polluters might eventually prefer being liable to an ambient tax.

Keywords: Nonpoint Source Pollution, Group Decision Making, Experiments, Acceptability of fiscal instruments

JEL Classification: C92, H3, Q5