Changing Prices in a Changing Climate: Electoral Competition and Fossil Fuel Taxation

• Published date: 01 July 2023
• DOI: http://doi.org/10.1177/00104140221141853
• Author: Jared J. Finnegan
• Date: 01 July 2023
• Subject Matter: Articles

Article

Comparative Political Studies

2023, Vol. 56(8) 1257–1290

© The Author(s) 2022

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DOI: 10.1177/00104140221141853

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Changing Prices in a

Changing Climate:

Electoral Competition

and Fossil Fuel Taxation

Jared J. Finnegan

1



Abstract

When do governments adopt ambitious climate policy? Charting the theo-

retical territory between climate change politics and long-term policymaking,

this paper highlights the role of electoral competition in shaping how poli-

ticians respond to the intertemporal tradeoff of one important climate change

mitigation policy: fossil fuel taxation. The more secure the government is in

off‌ice, the more insulated it is from the vagaries of political competition, and

the more likely it is to impose costs on constituents today to generate a future

stable climate. By inf‌luencing governments’time preferences, competition

structures the myopia of elected off‌icials. I test the arguments using an original

dataset of gasoline taxation across high-income democracies between 1988

and 2013. I f‌ind evidence that higher levels of electoral competition are

associated with lower gasoline tax rates, and that the relationship is mod-

erated by the level of costs imposed on voters, but not government parti-

sanship. More generally, the analysis highlights when governments can

increase consumer prices to address long-term challenges.

Keywords

climate change, fossil fuel taxation, long-term policymaking, electoral

competition, policy myopia

1

Department of Political Science, University College London, London, UK

Corresponding Author:

Jared J. Finnegan, Department of Political Science, University College London, 29-30 Tavistock

Square, London WC1H 9QU, UK.

Email: j.f‌innegan@ucl.ac.uk

Introduction

Climate change is one of the most signif‌icant long-term policy challenges

facing governments. To address it, economists have, for decades, advocated

carbon pricing (Nordhaus, 1977). Increasing the price of fossil fuels should

reduce their consumption and attendant carbon dioxide (CO

2

) emissions.

However, despite its theoretical elegance and wide diffusion in climate policy

discourse (Meckling & Allan, 2020), politicians have been slow to take up

such advice. By some estimates, 85% of global greenhouse gas emissions

remain unpriced (High-Level Commission on Carbon Prices, 2017) and only

around a quarter of emissions from OECD and G20 countries are priced at or

above €30 per tonne—the lower-end estimate needed to meet the objectives of

the Paris Agreement (OECD, 2021).

One explanation for this lack of enthusiasm is that vote-seeking politicians

are reticent about drawing the ire of voters who prefer low energy prices

(Rabe, 2010,2018). Indeed, a large body of survey research consistently f‌inds

that individuals dislike costly climate policies (e.g., Drews & Bergh, 2015;

Jagers and Hammar, 2009;Shwom et al., 2010). Beyond the ballot box,

governments are fearful of mass protest in response to tax rate hikes, such as

recent ones by the gilets jaunes in France.

The political calculus of imposing costs may be improved if the associated

benef‌its arrive quickly to voters; since voters and politicians tend to be

impatient, preferring policy benef‌its that arrive earlier in time (Jacobs and

Matthews, 2012;Sheffer et al., 2017). However, the primary benef‌it of carbon

pricing—a stable climate—is a diffuse, global public good generated over

decades. Further complicating matters, avoided climate change is the absence

of future harm, rather than an increase in an easily understood and tangible

consumption good, such as healthcare, infrastructure, pensions, or education.

Even ancillary benef‌its of climate mitigation, such as green jobs, innovation,

or reduced air pollution, are likely to only be manifest in the medium term. In

this way, fossil fuel taxation constitutes a type of intertemporal redis-

tribution—short-term costs are borne today for benef‌its that arrive in the future

(Finnegan, 2022a;Jacobs, 2011).

Considering these impediments, we can see why the politics of carbon

pricing have proven tumultuous. Indeed, a perennial critique of democratic

politics is that, being motivated primarily by re-election, politicians are

systematically unable to see beyond the next contest. Instead of making tough

choices today, they appeal to voters’short-sightedness, put off any sacrif‌ice for

as long as possible, and ignore the future consequences. Yet, while the myopic

pressures of democratic politics are daunting, the actual record of fossil fuel

taxation presents a more complicated story.

As I show in this paper, fossil fuel tax rates vary widely across the high-

income democracies and within them over time. In some countries, such as the

1258 Comparative Political Studies 56(8)

Netherlands and Belgium, tax rates increase almost every year while rates

have remained virtually unchanged for decades in the US and Canada. What

explains this variation? Why are some governments willing to invest in long-

term climate policies, like fossil fuel taxes, even at the risk of imposing short-

term costs on their constituents? Surprisingly, we still do not know much

about the answers to these questions. Despite its self-evident importance and

the centrality of politics, climate change has remained curiously absent as a

mainstream concern for political science (Keohane, 2015).

This article investigates the reasons for the puzzling variation in fossil fuel tax

rates by charting the largely unexplored theoretical territory between compar-

ative climate change politics and research from political science and economics

on long-termpolicymaking.It focuses on the roleof the electoral environment in

structuring politicians’time preferences. The basic argument is that the more

secure the government is in off‌ice, the more insulated it is from the vagaries of

political competition, and therefore, the more likely it is to increase taxes. By

shaping the incentives of elected off‌icials to impose direct and highly visible

costs on voters today, electoral competition informs how governments come to

value the future benef‌its of climate mitigation. In this way, electoral competition

shapes politicians’discount rates, and by extension theirpolicy myopia. WhileI

focus on fuel taxes, the argument is applicable more broadly to any long-term

policy problem that requires short-term increases in consumer prices.

To test the theory, I analyze taxation of an important and widely consumed

fossil fuel: gasoline. Gasoline is one of the largest sources of carbon pollution

worldwide. In the US, for example, it accounted for 22% of energy-related

CO

2

emissions in 2018; on par with coal (U.S. Energy Information

Administration, 2020). For this reason, gasoline taxes have been high-

lighted as one of the most important fossil fuel taxes adopted to date (Sterner,

2007); yet, pricing policies around the world have been mixed (Ross et al.,

2017).

Utilizing an original dataset of gasoline excise tax rates and a measure of

electoral competition developed using loss probability data from Kayser and

Lindst¨

adt (2015), I examine the relationship between competition and

taxation within twenty high-income democracies between 1988 and 2013

using f‌ixed effects models. I f‌ind robust evidence that higher levels of

electoral competition are associated with lower gasoline tax rates, even after

controlling for a wide range of potential confounders. Furthermore, the

negative inf‌luence of competition is moderated by politicians’perceptions of

voter preferences. When a tax increase is expected to impose high costs on

their constituents, because gasoline consumption is widespread, politicians

are even less likely to increase rates. Perhaps surprisingly, I f‌ind that

government partisanship plays little role in shaping tax rates. Takentogether,

the results provide strong evidence that electoral competition structures

Finnegan 1259