Willingness to Pay for Externalities – Does Earmarking Taxes Matter?

Abstract: This study explores the Willingness to Pay (WTP) for an environmental beef tax and the effects of revenue recycling mechanisms on WTP and beef consumption. It surveys students from Gothenburg University using a payment card approach, addressing literature gaps concerning the role of revenue recycling in environmental tax policy, behavioral economic factors affecting public perceptions, and potential biases in contingent valuation methods. Findings indicate that although there's a general reluctance to internalize the externalities of beef consumption, earmarking tax revenue to lower fruit and vegetable prices significantly augment WTP. In contrast, designating tax revenue for a uniform lump-sum transfer doesn’t significantly affect WTP. The demand curve analysis reveals no immediate impact of tax revenue earmarking on beef consumption but points out potential rebound effects. Additionally, the study illustrates the potential presence of hypothetical and social desirability biases in WTP estimation. These insights provide crucial guidance for policymakers to develop effective, publicly supported environmental policies that reduce the agricultural sector's environmental impact, promote sustainable food consumption, and contribute to achieving the Paris Agreement goals.