Two to Tango: Trust, Taxation and the Economics of Environmental Policy

Abstract

This thesis examines the question of environmental dilemmas from both a local and a global perspective. It explores the open question of cooperation in the climate commons and provides evidence in favor of a key role of trust in spurring cooperation in global dilemmas. Given the potential for cooperation in both local and global environmental dilemmas, this thesis explores the rationales for the limited diffusion of environmental taxes. It encompasses the issues of effectiveness and public acceptability in local and global situations and concludes that what most likely hampers the implementation of environmental taxes is the general public’s perception of ineffectiveness rather than any empirical ineffectiveness. Finally, it provides new insights on how to overcome this barrier to effective policymaking tackling local and global externalities. Overall, this thesis sheds new light on the question of environmental dilemmas. It examines from different perspectives the issues related with the application of market-based instruments to environmental externalities and provides original evidence-based insights to the political economy of commons. While different in terms of methodology, all chapters share the same behavioral implications. Individuals may be willing to play cooperatively in environmental dilemmas if they trust others to do so. That is, people's reticence to environmental taxes most likely stems from a general suspicion with respect to the taxes themselves rather than from a pure unwillingness to cooperate. This thesis provides the literature with a better understanding of cooperation and policy formation in the environmental arena, bringing to the issue both a touch of optimism, by underlying the importance of social norms, and a touch of pessimism, by recalling the endogeneity of environmental policy and emphasizing the obstacles to its acceptability. With no spirit of cooperation, the future would not look very bright for environmental taxation. There is no surprise though, it always takes two to tango.