Is tax aversion dominant? A survey experiment on combining energy taxes and subsidies

This study investigates the behavioral underpinnings of public support for environmental policy packages combining taxes and subsidies. Using a survey experiment with fractional combinations of these instruments, designed to achieve equivalent reductions in negative externalities, we examine how the public evaluates policy combinations. Our results reveal that, while support for combined policies falls between tax-only and subsidy-only levels, they are closer to tax-only support. This asymmetry is consistent with loss aversion and negativity dominance: in the public's evaluation of policies, taxes appear to weigh more heavily than equivalent subsidies. The effect is particularly pronounced in concerns about financial impacts on low-income households. Our findings indicate that combining unpopular taxes with favorable subsidies may not significantly increase public support, contrary to some theories of policy packaging. Particular attention should be paid to addressing concerns about negative financial impacts on low-income households when designing policy packages that include taxes.