Can Regional Compensation Mechanisms Increase Support for Carbon Taxes? Evidence from Austria

As the urgency of climate change intensifies, identifying viable pathways for reducing emissions has become a core focus of policy and research. Carbon taxation schemes are widely considered essential tools for encouraging emission reductions by making carbon emissions more costly for individual consumers. However, achieving public support for these schemes is critical for their successful implementation. Research shows that support for carbon taxes often hinges on perceptions of fairness, particularly whether they disproportionately impact certain groups. To address these concerns, policymakers frequently introduce compensation mechanisms that redistribute tax revenues to mitigate inequities. For instance, higher fuel prices tend to impact rural residents more than urban dwellers, especially in areas with limited public transport and greater car dependency. These effects can be balanced by directing higher compensation payments to rural communities. This study investigates the effective-ness of such regional revenue recycling in addressing these equity concerns, focusing on Austria as a case study. Austria provides a compelling context for this research, as it is the only country to implement a yearly lump-sum payment system that adjusts payouts based on citizens’ level of rurality and access to public infrastructure. Using AUTNES data, this study will first examine how regional differences in support for carbon taxation have evolved throughout various stages of the implementation process, including both the tax itself and associated compensation mechanisms. Additionally, the analysis will incorporate a survey experiment designed to explore the relationship between citizens’ awareness of the regional revenue recycling mechanism and their support for the tax. The survey experiment will address key questions: Are citizens aware of the regional payout differences? Do they know how their own region is classified? Does informing them about the regional compensation mechanism increase their support for the policy? And are there notable differences in responses between rural and urban residents? Understanding whether the regional compensation mechanism enhances public support for carbon taxation in Austria has broad implications for other countries grappling with similar equity concerns. Austria's approach may serve as a model for policymakers seeking to balance regional inequalities in the implementation of climate policies. Conversely, if the survey experiment reveals no effect on tax support, this would highlight the need to explore alternative strategies for building public acceptance of climate mitigation measures. The survey is scheduled to be conducted in early 2025, with results expected by April. A supplementary analysis of AUTNES data will be carried out in parallel with the survey design process. All results will be finalized and fully prepared for presentation at the conference in August.