Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion 

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The relative merits of different instruments

When the decision-maker chooses to take action to reduce pollution, he or she can adjust the level of regulatory constraint or the size of the economic incentives put in place to achieve the target level he or she has set. To the extent that more than one instrument can be used to meet a single environmental objective (albeit with varying degrees of precision), the choice of instru-ments to be preferred depends critically on all their other costs and benefits. The dual objective of decision-makers is therefore to determine which instrument(s) can achieve an environmen-tal objective at least cost (efficiency objective), also considering how the instruments lead to the distribution of this cost among agents (equity objective).

One externality in a stylized model

In a simplified scenario in which the environmental externality would be the only market failure in the economy, market-based instruments provide the most effective response to the problem caused by pollution. By imposing a uniform price on the externality, i.e. on each unit of pollution emitted, these instruments encourage all actors to reduce their pollution as long as this effort « costs » them less than the imposed price. If the price of a unit of pollutant is xe, the agents (households and companies) will prefer to give up their pollution if it brings them a profit of less than xe, but will continue with activities that bring them more profit. The equalization of the marginal costs of abatement therefore makes it possible to achieve a given environmental objective (which may be more or less ambitious depending on the level of the price) at the lowest cost (these instruments are called « cost-effective ») since the emission re-ductions undertaken will be all those—and only those—requiring an effort lower than the price of the externality (Baumol & Oates, 1971). For the same to be true of regulatory instruments, it is necessary to set specific standards for each polluter according to his or her abatement costs. When polluters are numerous and heterogeneous, and even more so when there are informa-tion asymmetries between polluters and the regulator regarding these costs, such a policy is not feasible. The costs of pollution abatement may thus be too high for those who have the greatest difficulty in changing their behavior (e.g. a person living in the countryside who would be prohibited from driving more than 5,000 km per year), and too low for others who could have reduced their pollution further (e.g. a person living in a large city who would be sub-ject to the same constraint). From a dynamic point of view, equalising marginal abatement costs also implies a better efficiency of market instruments through innovation. While regulatory ins-truments impose a binary framework (whether clean technology is adopted or not), market instruments make in theory any reduction in emissions profitable, and thus provide incentives for the development of ever cleaner technologies. 23
In redistributive terms, the effect of market instruments such as taxes depends on how pol-lution is initially distributed in the population. When the taxed pollution is related to energy consumption (as is the case with the carbon tax), taxes are generally regressive because even though poorer households on average consume less energy (and therefore pollute less), this expenditure represents a larger share of their resources (e.g. Poterba, 1991; Metcalf, 1999; Grain-ger & Kolstad, 2010). However, these redistributive effects can in theory be compensated for by means of lump-sum transfers. If these transfers are not conditional on variables that taxpayers can adjust, they will not induce a change in the incentives to reduce emissions. Thus, nume-rous studies have shown that when the income from a carbon tax is redistributed uniformly to all households, the policy becomes progressive : the amount of the transfer is on average hi-gher than the taxes paid by the most modest households, and lower than that paid by the most affluent (e.g. West & Williams, 2004; Bento et al., 2009; Williams et al., 2015).

Multiple market failures

The previous stylized framework highlights the powerful mechanisms that flow from eco-nomic incentives. However, these arguments are based on a number of assumptions that are in practice never fully satisfied. When other market failures come into play, the comparative advantages of market-based instruments need to be reconsidered. In this so-called second-best situation, « a combination of policies is likely to be more dynamically efficient and attractive than a single policy » (Stern & Stiglitz, 2017). Thus, imperfect information may lead to a mi-sallocation of abatement efforts induced by a single tax. This is particularly the case when the diffusion of clean technologies is slowed down by frictions. In this situation, regulatory instruments can have the advantage of producing information on the best available technologies. Where the changes in behavior targeted by market instruments require the development of new infrastructure (e.g. to facilitate the development of cycling or electric cars), public investment can also be a useful complement to environmental taxation. Also, where consumer decisions are not determined by purely rational reasoning, other instruments such as standards or labels can be effective substitutes for or complements to market instruments. Finally, as shown in the first chapter of this thesis, when redistributive effects concern a large number of individuals heterogeneous on multiple dimensions, lump-sum transfers offer only an imperfect response to redistributive problems since the government cannot precisely target households to compen-sate them according to their needs. In the absence of adequate compensation, the mitigation of redistributive effects—partly due to past investments that can only be changed by costly new investments—can only be achieved by facilitating the transition to less polluting consumption patterns, e.g. through support for the conversion of polluting capital (e.g., vehicles, oil-fired boilers).
The relative merits of the instruments therefore depend on the environmental problem un-der consideration, and other issues that may interact with these measures. In general, market-based instruments can be considered necessary (although not sufficient) in the face of global problems with diffuse sources such as climate change, while regulatory instruments are all the more relevant when dealing with pollution whose sources are specific and well-known. Also, the more ambitious the objective is (i.e. close to 100% abatement), the smaller the difference in effectiveness between the different approaches is likely to be (Goulder et al., 1999). Indeed, banning the use of a pollutant is equivalent to a tax high enough to ensure that no one produces and consumes it any more. In these situations where differences in efficiency are small, other criteria are also likely to be decisive, such as the costs of implementing and managing the mea-sure in question (e.g. the cost of monitoring compliance with standards, or of collecting taxes). Finally, where regulatory measures are significant, their effects on the economy are likely to lead to changes in the economic system beyond the level of pollution. For example, by regulating the pollution of firms, environmental policies can force them to reduce their activity, thus affecting employment and wages. On this point, it is again difficult to conclude unequivocally on the be-nefits of each instrument. However, a substantial literature has highlighted the value of taxes whose revenue can be used to finance new public expenditure—such as green investments or compensation to the most negatively impacted taxpayers—or, on the contrary, to lower existing taxes (Tullock, 1967; Terkla, 1984). Thus, by making it possible to replace taxes on goods that society wishes to favour (for example, employment) by taxes on goods that it wishes to reduce (here pollution), environmental taxes make it possible in certain cases to obtain a « double di-vidend », i.e. not only to reduce pollution, but also to favor the economy (Pearce, 1991). 24 This strategy to minimize the aggregate costs of environmental reform is not, however, neutral from a redistributive point of view (Williams et al., 2015). While several environmental tax reforms are possible, they imply an important trade-off between reducing aggregate costs and ensuring their equitable distribution (Goulder & Parry, 2008).

Environmental policies in practice

Successes and failures of environmental policies

The preceding sections provide an overview of the basic framework provided by econo-mic theory for addressing environmental issues. The application of these theories has in the past led to a number of successes in environmental protection. Where polluting products could most easily be substituted by cleaner alternatives, the use of standards has proved effective, as illustrated by the examples of the ban on CFCs or leaded fuels. Standards are also frequently used—sometimes in combination with market instruments—to control water pollution (Shortle & Horan, 2013) and air pollution (Kuklinska et al., 2015). The use of market-based instruments is more frequent for more diffuse problems, or when behavioral changes involve a significant cost. Thus, before their complete ban, the introduction of permit markets led to a gradual reduc-tion in the use of CFCs and leaded fuels (Hammitt, 2000; Kerr & Newell, 2003). These policies have also proved their worth in the management of certain natural resources such as fisheries (Hilborn et al., 2005), or in the regulation of pollutants from energy consumption. Unilateral ac-tions by some countries to reduce their consumption of fossil fuels through CO2 taxation have for example, proved effective, as shown by the Swedish example (Andersson, 2019) and the British example (Leroutier, 2019; Abrell et al., 2019). In France, the increase in taxation on die-sel has induced a significant change in the car fleet, while the ecological bonus-malus policy has accelerated the transition to less emitting vehicles at a higher rate than the initial projections (d’Haultfoeuille et al., 2011).
However, for many major environmental problems, starting with climate change, the poli-cies implemented remain largely unsatisfactory, as they are insufficient and often inappropriate. While economists agree on the need for a carbon tax to limit climate change, 25 in 2018 55% of the emissions of OECD and G20 countries were not subject to any price (OCDE, 2018). Thus, even in these relatively developed countries the effective levels of regulation remained very low, well below the most conservative recommendations in the literature. Beyond their low level, cli-mate change policies are also striking in their diversity, sometimes at the price of effectiveness. As mentioned above, in a second-best environment, the use of multiple instruments is justified for both efficiency and equity reasons (Stern & Stiglitz, 2017; Stiglitz, 2019). However, the frag-mentation of sectoral policies with numerous exemptions generates important differences in abatement costs between countries and between sectors, leaving room for significant opportu-nities to reduce emissions or their abatement costs. 26

A difficult inter- and intra-generational coordination

The free-rider problem

Undoubtedly, the main explanation for the low ambition of policies in the face of environ-mental threats is to be attributed to a lack of coordination between polluters and polluted. While everyone benefits from the reduction of pollution by others, no one has an interest in suppor-ting the clean-up efforts themselves. This situation thus creates a so-called « free-rider problem », where individuals have a private interest in not contributing enough to a public good. In the case of climate change, this problem is accentuated by two factors specific to the characteristics of this environmental problem : its diffusion in time and space. Because each unit of GHG emit-ted in a given place on earth will have consequences on the entire globe for several centuries, the fight against this pollutant requires the cooperation of all citizens, all countries, all genera-tions. Thus, in the absence of a regulator with authority over all the citizens of the world and representing their common interest—a fortiori that of future generations—the coordination of efforts to combat climate change remains extremely difficult.

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Voluntary contributions

In the case of the fight against climate change, the difficulties in coordinating the action of States have led decision-makers to abandon at least temporarily the search for a common agreement setting out binding measures (such as the Tokyo agreement in 1997), in favor of de-centralized decisions in the form of voluntary contributions (the form adopted at the COP 21 in Paris in 2015) (Harstad, 2020). Despite strong incentives for free-riding, many countries have committed themselves to ambitious climate action. In the absence of perfect altruism on the part of all actors, these voluntary contributions are necessarily sub-optimal, and the pledges made at the time of the Paris agreement remain insufficient to meet the announced objective of contai-ning global warming to a maximum of +2°C (Rogelj et al., 2016). These commitments, however, suggest the possibility of developing relatively ambitious environmental and climate policies, motivated by ambitions as varied as the search for economic or environmental co-benefits, the desire to gain a technological lead, diplomatic leadership, altruism or a sense of historical duty (Keohane & Victor, 2016). These promises of the States also echo demand from citizens in many countries, as illustrated by the emergence of climate movements in civil society, 27 or the ambi-tious policy proposals made by French citizens at the Citizen’s Convention for the Climate 28.

Agreement on ends, disagreement on means

In spite of these wishes, the environmental policy agenda—and more particularly climate policy—is struggling to move forward. While a majority of citizens in many countries appear concerned about climate change and say they are ready to act (cf. chapter 3 of this thesis), di-sagreements over the means persist. The Yellow Vest movement, which strongly opposed the deployment of a carbon tax in France at the end of 2018, illustrated the gap between the plans of many decision-makers and the expectations of citizens in the fight against climate change. These oppositions, which are not specific to France (cf. Carattini et al., 2018), reflect a certain skepticism as to the true effectiveness of economic instruments, as well as a deep disagreement on the distribution of the decarbonation effort (documented in Chapters 2 and 3), leading many citizens to see the carbon tax only as an additional tax reducing their purchasing power.

The subject of this thesis

The objective of the research conducted in this thesis is to better understand citizens’ atti-tudes towards environmental policies. The work presented shows that citizens care about the environment and the climate and support the implementation of ambitious climate policies (chapter 3), but that they are opposed to the implementation of carbon taxation (chapters 2 and 3). In order to better understand the reasons for this opposition, this thesis explores both objective dimensions, such as the redistributive effects of carbon taxation (chapter 1), and sub-jective dimensions by considering the perceptions that citizens have of this policy (chapter 2). The link between preferences —particularly with regard to risk— and environmental policies is also studied from a more theoretical perspective, in a model in which the economy faces rare environmental disasters (chapter 4).

Contributions

The first chapter examines the redistributive effects associated with the latest changes in energy taxation (and in particular its carbon component) in France, i.e. the last increases before the emergence of the Yellow Vests protests. This study adds to a well-established literature on the redistributive effects of energy taxes, but it offers a novel perspective on the subject in two ways. First, while the literature has largely focused on the redistributive effects between income groups (so-called « vertical effects »), this chapter shows that the incidence of energy taxation is more heterogeneous between households with the same income (« horizontal effects »). This result echoes the concerns raised by the Yellow Vests about the disproportionate impact of the carbon tax on certain categories of households, such as rural and peri-urban households, but not necessarily all low-income households. Second, the use of micro-simulation allows me to simulate the impact of energy taxes at the household level, allowing accurate characterization of the tax impact along many dimensions. On the basis of this analysis, this chapter shows that it is much more difficult to deal with horizontal redistributive effects than vertical ones, because the heterogeneity of the tax incidence is poorly explained by observable household characteristics (whether geographical or socio-demographic), and it is more difficult for the government to target compensation on the basis of variables other than income.
The second chapter also looks at carbon taxation in France, and more specifically at how households perceive it. In this chapter, co-authored with Adrien Fabre, we analyse these per-ceptions, try to understand how they are formed, and how they translate in terms of positio-ning vis-à-vis the carbon tax. To do so, we created and administered a survey of 3,002 people representative of the French population. The respondents were presented with a carbon tax and dividend policy, i.e. a carbon tax whose income is transferred uniformly and entirely to all hou-seholds. While this policy is widely defended by economists with a view to reconciling carbon taxation and social justice, we show that it is largely rejected by the French people. 29 This rejec-tion goes hand in hand with pessimistic perceptions about the effects of the policy : the French overestimate its negative impact on their own purchasing power, think it is regressive and inef-fective in reducing pollution and fighting climate change. We also find that rejection is strongly correlated with pessimism, and show that the causality between rejection and pessimism goes in both directions. When respondents are provided with new information about the policy, they tend to reject the positive information but to deal correctly with the negative. This phenomenon is stronger for those who are more opposed (including controlling for their initial beliefs), es-pecially for those with higher education. This finding suggests that pessimistic beliefs may be formed in part by a motivated reasoning in which respondents justify their opposition by the effects they attribute to the policy. On the other hand, the original design of our survey allows us to show that beliefs causally determine support for the policy. We find that if people were convinced of the true attributes of the policy, the policy would be endorsed by a large majo-rity. This result confirms that the rejection of a carbon tax and dividend is not motivated by people’s intrinsic preferences regarding the effects of the measure, but rather by self-sustaining pessimistic beliefs that reinforce their mistrust, further increasing their pessimism, and so on.

Table of contents :

Introduction générale 
Main introduction
1 The Vertical and Horizontal Distributive Effects of Energy Taxes : A Case Study of a French Policy 
1.1 Introduction
1.2 Data
1.2.1 The French household surveys
1.2.2 Data to simulate the policy
1.3 Estimating households’ responses to prices
1.3.1 The Quadratic almost ideal demand system
1.3.2 Results
1.4 Environmental and distributive effects of energy taxes
1.4.1 The effects on greenhouse gas emissions
1.4.2 Monetary effects between income groups
1.5 Horizontal distributive effects
1.5.1 Monetary effects within income groups
1.5.2 The determinants of within-income group distributive effects
1.5.3 Alternative revenue-recycling strategies
1.6 Conclusions
1.A Descriptive statistics
1.B The microsimulation model TAXIPP
1.C The Quadratic Almost Ideal Demand System
1.C.1 The model
1.C.2 Elasticities
1.C.3 Households’ heterogeneity
1.C.4 Specification and estimation
1.C.5 Results
1.D Policies simulated
1.D.1 The official policy
1.D.2 Targeted transfers design
1.E Matching
1.E.1 Why it is necessary to match BdF and ENTD
1.E.2 The matching procedure
1.E.3 Ex post validation
2 Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion 
2.1 Introduction
2.2 Context, survey, and data
2.2.1 Context of the study
2.2.2 Our survey
2.2.3 Official households surveys
2.3 Pessimistic beliefs
2.3.1 Self-interest
2.3.2 Environmental effectiveness
2.3.3 Progressivity
2.4 How attitudes shape beliefs
2.4.1 Self-interest
2.4.2 Environmental effectiveness
2.4.3 Progressivity
2.5 How beliefs determine attitudes
2.5.1 Self-interest
2.5.2 Environmental effectiveness
2.5.3 Progressivity
2.6 Conclusion
2.A Raw data
2.B Notations
2.C The use of official household survey data
2.C.1 Official households surveys from Insee
2.C.2 Formulas to compute monetary effects of carbon tax policy
2.C.3 Predicting gains and losses
2.C.4 Distributive effects
2.D Beliefs and persistence
2.D.1 Elasticities
2.D.2 Self-interest
2.D.3 Environmental effectiveness
2.D.4 Progressivity
2.E Estimation of acceptation motives
2.E.1 Two-stage least squares : first stage results
2.E.2 Additional specifications
2.F Control variables
2.G Questionnaire
2.H Profile of the Yellow Vests
2.I Support rates for Tax & Dividend policies
2.J Relation between support and belief in progressivity
2.K Willingness to pay
2.L Ensuring data quality
3 French Attitudes on Climate Change, Carbon Taxation, and other Climate Policies 
3.1 Introduction
3.2 The survey
3.2.1 Presentation of the survey
3.2.2 Eliciting attitudes
3.3 Perceptions and Attitudes over Climate Change
3.3.1 Knowledge
3.3.2 Positions
3.3.3 The Reaction Needed
3.4 Attitudes over Carbon Tax and Dividend
3.4.1 Widespread rejection
3.4.2 Perceived winners and losers
3.4.3 Perceived pros and cons
3.4.4 Consumption and mobility constraints
3.5 Attitudes over Other Policies
3.5.1 Preferred Revenue Recycling
3.5.2 Other Instruments
3.6 Determinants of Attitudes
3.6.1 Attitudes over climate change
3.6.2 Attitudes over policies
3.7 Conclusion
3.A Raw data
3.B Sources on GHG emissions
3.B.1 Carbon footprints
3.B.2 Current and target emissions
3.C Details on main regressions
3.C.1 Control variables
3.C.2 Measures for relative preferences
3.D Questionnaire
3.E Who are the Yellow Vests
3.F Supplementary material
3.F.1 Additional results on attitudes over climate change
3.F.2 Test different wording for winners and losers
3.F.3 Additional specifications for determinants of attitudes
3.F.4 Construction of the knowledge index
3.F.5 Logit regressions for determinants
3.F.6 Robustness for the absence of cultural cognition effect
4 Disaster Risks, Disaster Strikes, and Economic Growth : The Role of Preferences
4.1 Introduction
4.2 General framework
4.3 Benchmark : exogenous disasters
4.3.1 Specification
4.3.2 Optimal resources allocation
4.3.3 Optimal growth and the effects of disasters
4.4 Disasters of endogenous probability
4.4.1 Specification
4.4.2 Optimal resource allocation
4.4.3 Optimal growth and the effects of disasters
4.4.4 Disasters and welfare
4.5 Quantitative assessment
4.5.1 Set-up
4.5.2 How likely is it that disasters foster economic growth?
4.5.3 How much do disasters impact welfare ?
4.5.4 Does using Epstein-Zin-Weil preferences matters quantitatively?
4.6 Conclusion .

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