Jared J. Finnegan Princeton University
For over forty years, economists have advocated carbon taxes as the most efficient policy for addressing climate change. However, not all governments have increased the price of fossil fuels. When do politicians decide to increase consumer prices? This paper highlights the role of electoral competitiveness. I argue that carbon tax increases are most likely when competitiveness is low and politicians are insulated from voter punishment. Moreover, this effect depends on the personal costs of tax increases to voters. I test this explanation using an original dataset of gasoline taxes and new data on electoral competitiveness across high-income democracies between 1978 and 2013, as well as a case study of eco-tax reform in Germany. This analysis points to a crucial mechanism that plausibly accounts for the differential ability of governments to tackle a wider range of long-term policy challenges.
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