Can combining tax and subsidy generate less public opposition than tax alone?

Last registered on February 07, 2023

Pre-Trial

Trial Information

General Information

Title
Can combining tax and subsidy generate less public opposition than tax alone?
RCT ID
AEARCTR-0009099
Initial registration date
November 24, 2022

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
November 30, 2022, 3:27 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
February 07, 2023, 10:15 AM EST

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Primary Investigator

Affiliation
Institute of Transport Economics

Other Primary Investigator(s)

PI Affiliation
Cicero
PI Affiliation
School of Economics and Business, NMBU

Additional Trial Information

Status
Completed
Start date
2022-11-24
End date
2022-12-02
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Pigouvian taxes are politically difficult to introduce at a high enough rate because of opposition from the public. Subsidies on the other hand are often popular. How will a combination of tax and subsidies be considered by ordinary people, compared to each of the policy instruments in isolation? Will a combination of a tax and a subsidy generate less public opposition than tax alone? Is there a difference in the support if the combination is more tax than subsidies or if there is more subsidies than tax? We investigate this in an online interactive experiment.
External Link(s)

Registration Citation

Citation
Andreassen, Gøril, Steffen Kallbekken and Knut Einar Rosendahl. 2023. "Can combining tax and subsidy generate less public opposition than tax alone? ." AEA RCT Registry. February 07. https://doi.org/10.1257/rct.9099-2.0
Sponsors & Partners

There is information in this trial unavailable to the public. Use the button below to request access.

Request Information
Experimental Details

Interventions

Intervention(s)
The intervention is to study the support for policy with different combinations of tax and subsidy compared to only tax and only subsidy. The voting over policy is done for a fictitious market with externalities.
Intervention (Hidden)
There are groups of three participants acting as buyers in a fictitious market. Each participant can buy up to 6 units of a good. Each unit of the good has a different value, but the price is the same. The first unit has the highest value and then each additional unit is worth less. The value of the units each participant buy is used to calculate the bonus payment each round.

This is how the bonus payments are calculated: The value of the unit(s) each participant bought minus the price of the unit(s) each participant bought.

The money in the experiment is in tokens. 100 tokens equal £1. The price each participant pays for each unit of the good is 40 tokens.
The value of the first unit is 130 tokens, 110 for the second, 90 for the next, then 70, 50 and 30 for the sixth unit.

There is one more feature of the market that affects the bonus payment. Buying the good creates an additional cost. For each unit a buyer in the group purchases, a cost of 20 tokens is imposed on each of the two other members of the group.

The Nash equilibrium is this market is to choose 5 units.

After making a decision in the market without any policy, the intervention is to ask the participants to vote on the rules that will govern the next round of the market. The option that receives the majority of votes will be implemented.

The participants' choices are to either: 1) keep the rules as they were for the previous three rounds or 2) introduce a tax of 40 tokens per unit. For subsidies this alternative is "introduce a subsidy of 40 tokens per unit that you do not buy" and for the combination it is to either 1) "introduce a tax of 10 tokens per unit and a subsidy of 30 tokens per unit that you do not buy." 2) "introduce a tax of 20 tokens per unit and a subsidy of 20 tokens per unit that you do not buy." 3) "introduce a tax of 30 tokens per unit and a subsidy of 10 tokens per unit that you do not buy."

If the majority in the group vote for a tax, the new price per unit will be 80 tokens. For subsidy: If the majority in the group vote for a subsidy, the price per unit will remain 40 tokens but the participants will receive 40 tokens per unit (s)he do not buy. For the combination: If the majority in the group vote for a policy, the new price per unit will be 50/60/70 tokens and the participants will receive 30/20/10 tokens per unit (s)he do not buy.

The value of each unit remains the same.

When making the choice between policy or no policy, the participants are not fully informed about how the policy is financed, which resembles real life. It is important not to deceive any of the participants, therefore we write the following when they are to vote about the policy: "The tax generates revenue. The group’s budget will be balanced through personal transfers of tokens between the members of the group." For the subsidy: "The subsidy costs money. Your group’s budget will be balanced through personal transfers of tokens between the members of your group." For the combination: "The tax generates revenue and the subsidy costs money. Your group’s budget will be balanced through personal transfers of tokens between the members of your group."

After the decision is made and the number of units are chosen, we inform about how the policy is financed. For the tax treatment, we write: "To balance the group's budget you received half of the tax revenue collected from the two others in your group, whereas they received half each of any tax you paid." For the subsidy treatment we write "To balance the group's budget you paid half of the subsidy cost for the two others in your group, whereas they paid half each of any subsidies you received." For the three combination treatments we write: "To balance the group's budget you received half of the tax revenue collected from the two others in your group and you paid half of the subsidy cost for the two others in your group. Similarly, the two others in your group received half each of any tax you paid and paid half each of any subsidies you received."

The policy increases the pay-off for the participants compared to not having a policy if everyone in the group chooses the Nash equilibrium. The payoff for the three different policies is the same if all three members of the group choose the Nash equilibrium.
Intervention Start Date
2022-11-24
Intervention End Date
2022-12-02

Primary Outcomes

Primary Outcomes (end points)
The key outcome variable is the binary variable on whether the participants voted for a policy or not. There are five options: a tax, a subsidy or three different combinations of those two. We will compare the support for the different combinations with the tax and with the subsidy.
Primary Outcomes (explanation)
The variable vote will be equal to 1 if the participant vote for a policy in one of the treatments.

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

Experimental Design
This is a lab experiment with a between-subjects design. The participants are recruited from the online platform Prolific.
Experimental Design Details
All interactions are anonymous.

The experiment consists of 2 parts with 1 round each. Before each participant can enter the experiment, (s)he will receive instructions and we will ask him/her some control questions to test that (s)he understands the instructions.

The participant is informed about the purpose of the project, which institution is responsible for the research project,
what participation involves for them, that participation is voluntary, the participants' personal privacy and the rights of the participants. Each participant has to consent to take part in the study.
Randomization Method
We randomize participants into the five different treatment groups according to the order in which they enter into the experiment and answer correctly on the control questions because the order people enter the experiment and answer control questions is random. We use this code to order the participants into the five different treatments: treatment = 1 + (groupNr-1) \% 5
Randomization Unit
Groups of three Prolific participants.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
500 groups.
Sample size: planned number of observations
1500 participants.
Sample size (or number of clusters) by treatment arms
1. 100 groups with in total 300 participants: Tax
2. 100 groups with in total 300 participants: Subsidy
3. 100 groups with in total 300 participants: A combination of tax (25%) and subsidy (75%)
4. 100 groups with in total 300 participants: A combination of tax (50%) and subsidy (50%)
5. 100 groups with in total 300 participants: A combination of tax (75%) and subsidy (25%)
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
6 percentage points difference between the different treatment groups and the tax group or the subsidy group.
IRB

Institutional Review Boards (IRBs)

IRB Name
The Institutional Review Board (IRB) at HH-NMBU
IRB Approval Date
2022-10-04
IRB Approval Number
HH-NMBU IRB 02/22
Analysis Plan

There is information in this trial unavailable to the public. Use the button below to request access.

Request Information

Post-Trial

Post Trial Information

Study Withdrawal

There is information in this trial unavailable to the public. Use the button below to request access.

Request Information

Intervention

Is the intervention completed?
Yes
Intervention Completion Date
November 24, 2022, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
November 24, 2022, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
1641 participants
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
1641 participants
Final Sample Size (or Number of Clusters) by Treatment Arms
Tax: 331 participants 75% tax and 25% subsidy: 323 participants 50% tax and 50% subsidy: 325 participants 25% tax and 75% subsidy: 328 participants Subsidy: 334 participants
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials