Why Do Environmental Taxes Work Better in Developed Countries?

Jessica Coria, Clara Villegas-Palacio and Juan-Camilo Cardenas

No 521, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: 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.

Keywords: laboratory experiments; emission taxes; imperfect monitoring; technology adoption; developing countries; cross-country comparison; Colombia; Sweden. (search for similar items in EconPapers)
JEL-codes: C91 L51 Q58 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2012-01-03
New Economics Papers: this item is included in nep-ene, nep-env, nep-exp, nep-lam, nep-reg, nep-res and nep-soc
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