Experts’ conjectures, people’s statements and true preferences: The case of carbon price support

Abstract

Public policy choice is prone to biases, especially in fields where distributional impacts matter for public support. A case in point is the allocation of revenues from carbon pricing, where both households’ stated policy preferences and experts’ conjectures are important inputs to deliberation - but can also be subject to hypothetical or perception biases. This study is the first to contrast preferred revenue allocations based on a stated and revealed preference experiment and expert assessments, finding small differences between stated and revealed preferences, but large deviations in expert opinions. Both the stated and the revealed preference experiments show that support for a carbon price increases with the share of tax revenues devoted to green spending and decreases with the share devoted to lump-sum or hardship payments. Experts overestimate overall support for carbon pricing and overestimate the popularity of redistribution payments, in particular at higher price levels. This suggests that experts’ assumptions may not accurately reflect public opinion, potentially leading policy makers to adopt climate policies that lack public support.

Keywords: Carbon pricing, climate change mitigation, redistribution, environmental tax reform, revealed preferences, hypothetical bias

JEL Classification: C90, D30, H23, Q54