Maxence Gérard (CREM-LAB, Université de Rennes)
Inefficiently low environmental taxes require additional efforts from consumers but, paradoxically, tend to crowd them out. Evidence has shown that crowding-out effects diminish when tax salience is reduced or taxes are paired with environmental information, yet little is known about the welfare effects of these tax designs. This paper compares the effect of (i) a salient tax, (ii) a salient tax with information about the actual level of the externality, and (iii) a hidden tax, when consumers exhibit moral motivation. If the regulator seeks to maximize material welfare, ignoring consumers’ moral utility, a hidden tax should be preferred when the tax is strongly constrained, while a salient tax with information is more efficient otherwise. By contrast, the tax design maximizing total welfare depends on a trade-off between material improvements and consumers’ moral disutility.