Impact of Cost Transparency and Mixed Revenue Use on the Maximum Acceptable Carbon Tax

Abstract

Abstract Public acceptability remains a major barrier to implementing effective carbon taxes. Resistance often stems from misconceptions about the costs and benefits of the policy. Two potential tools to improve acceptability are revenue recycling, which links the tax to tangible benefits, and cost transparency, which presents the financial burden in more concrete and understandable terms. This paper examines the effects of mixed revenue use and cost transparency on carbon tax acceptability, drawing on representative survey experiments in Germany ( n = 1327) and Italy ( n = 1293). When possible, respondents allocated substantive shares of revenues for multiple purposes rather than dedicating them to one single scheme. Aggregate allocation patterns differed substantially between single-use and mixed-use settings, with less funding directed to general budgets and climate projects under mixed-use. However, contrary to expectations, mixed-use did not significantly increase carbon tax acceptability. By contrast, presenting carbon tax costs in gasoline price equivalents significantly increased the maximum acceptable carbon tax. The anticipated mechanism, that transparency would particularly benefit those who overestimated costs, was not supported. Instead, exploratory analysis reveals heterogeneous responses depending on prior cost perceptions, with patterns consistent both with belief confirmation and with the correction of overly pessimistic expectations.