Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment

The research paper employs a lab experiment with 195 subjects to compare public support for taxes and subsidies designed to correct a negative externality. The study finds that subsidies consistently receive higher support than taxes, a gap that is widened when participants have only partial information about how tax revenues are spent or subsidies are funded. While full budgetary information increases support for both instruments, it disproportionately benefits taxes. Interestingly, participants expected taxes to be more effective at reducing the externality than subsidies, despite preferring the latter. The authors conclude that the lack of trust or clarity regarding the use of tax revenues is a primary driver of tax aversion.

• Subsidies consistently receive higher levels of public support than taxes, regardless of whether participants have full or partial information about the budgetary rules.
• Providing full budgetary information increases the acceptability of both taxes and subsidies, but the positive effect is significantly stronger for taxes.
• Under partial information, participants expect subsidies to increase their individual profits more than taxes; however, with full information, expectations for taxes shift from a perceived loss to a perceived gain.
• Contrary to some existing literature, the experiment found that participants perceived taxes to be more effective than subsidies in reducing the total number of units purchased (the externality) when only partial information was provided.
• The observed market efficiency gains following the implementation of either a tax or a subsidy (30-34 pesetas) were lower than the theoretical prediction of 70 pesetas.
• The authors conclude that the primary reason for lower support for taxes is the fear that participants will not receive the benefits from the tax revenues.

APA

Heres, D., Kallbekken, S., & Galarraga, I. (2013). Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment. Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201301310328091108627813.pdf

Chicago

Heres, David, Steffen Kallbekken, and Ibon Galarraga. Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment. Basque Centre for Climate Change, 2013. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201301310328091108627813.pdf.

Wikipedia

{{cite report |last1=Heres |first1=David |last2=Kallbekken |first2=Steffen |last3=Galarraga |first3=Ibon |title=Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment |publisher=Basque Centre for Climate Change |date=January 2013 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201301310328091108627813.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{heres2013understanding, author = {Heres, David and Kallbekken, Steffen and Galarraga, Ibon}, title = {{Understanding Public Support for Externality-Correcting Taxes and Subsidies: A Lab Experiment}}, institution = {Basque Centre for Climate Change}, year = {2013}, month = jan, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/201301310328091108627813.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }