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Evaluating Australian Environmental Taxes through Behavioural Economics: A Case Study of the Sydney Harbour Bridge Charge
by Anna Belgiorno-Nettis, 19 February 2018

In November 2017, the latest Climate Change Performance Index was released. The Index’s annual review of climate change policies in 60 countries confirmed that, in Australia, not much has changed. Like in 2016, we rank as one of the lowest performing countries, at 57th out of 60 (Figure 1). This year’s results “demand that [Australia’s] government sufficiently implement credible policies for meeting their targets.” It echoes last year’s index, which critiqued our policies for being “unambitious and uninspired.” It is clear that Australian environmental regulation requires re-evaluation. And our 2011 national Climate Change Review shows taxes are one of the predominant regulatory methods to reduce emissions.

We therefore should be exploring what our tax policies could be doing to improve our effect on the environment.

Why behavioural economics?

There are many ways in which environment-related tax policies can be evaluated. One way that is often used is through traditional economics. Another way is through a less-traditional economics framework: behavioural economics. Behavioural economics draws on insights from psychology, as well as neoclassical economics, to understand individual decision-making processes. It gives us a way to evaluate Australian environment and tax related policies in a new light, without rejecting past economic analyses. Here, I use behavioural economics to analyse one particular environment-related tax: the Harbour Bridge Congestion Charge. In my journal article, which this post summarises, I also evaluate the Emissions Trading Scheme, the new Emissions Reduction Fund, environmental tax cases and pro-compliance messaging. To evaluate the charge, my post first refers to what insights behavioural economics has for congestion charges in general. I draw many of these insights from Leicester, Levell & Rasul (2012), who analyse the behavioural economics framework directly in relation to taxation policy. Then I explore whether the charge incorporates those insights, and consequently what could be done to environmentally ameliorate both charges like this, and taxation policy more generally.

Read the full article at Austaxpolicy blog.

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