Nicholas Bornstein1 and Bruno Lanz2, EPFL Lausanne Paper Prepared for the Annual Meeting of the Swiss Society of Economics and S

POLITICAL FEASIBILITY OF GREEN TAXES IN SWITZERLAND:

EXPLAINING COMMUNAL DEVIATIONS IN APPROVAL RATES

Nicholas Bornstein1 and Bruno Lanz2, EPFL Lausanne

Paper prepared for the Annual Meeting of the Swiss Society of Economics and Statistics: Resource Economics, Technology, and Sustainable Development. Zurich, March 17-18, 2005

JEL Classification: H23, Q50, Q52 Keywords: environmental taxes, Switzerland, voting, sustainability

ABSTRACT

The aim of this paper is to test and extend Thalmann’s analysis (2004) on the acceptability of taxes on non-renewable energy in Switzerland. Three taxes with differentiated tax levels and modes of revenue recycling were proposed, but all three projects were denied approval. While Thalmann’s study was done with individual survey data, we study the same vote with aggregate data on the communal level. A SURE model is employed, which regards participation and the voter’s decision as two separate processes. The explanatory power of the model is improved considerably with additional variables, demonstrating that leftist political affinity, higher education, language, car dependency, and the industrial sector account for most of the variance in individual voting choice. A clear gain in studying votes on environmental issues lies in the interdisciplinary character of this paper, which allows for a combination of skills of political science and economics.

1 Swiss Federal Institute of Technology Lausanne, ENAC – INTER – REME, 1015 Lausanne, [email protected]. The present research was conducted as part of the doctoral thesis by the co-author. We are thankful for financial support by the Swiss National Science Foundation, grant 100012-103517. We especially would like to thank Philippe Thalmann and Pascal Sciarini for their helpful comments; José Anson for supplying invaluable data, and Laurent Viguier for providing us with the GEMNI-E3 model. 2 Swiss Federal Institute of Technology Lausanne, ENAC – INTER – REME, 1015 Lausanne, [email protected]. The co-author is currently working as scientific collaborator on the aforementioned project.

1. Introduction

In the scientific community there is nowadays a consensus that the level of CO2 emissions is too high. Economists dealing with the environment and its protection have repeatedly proposed market-based instruments to handle emissions output. Voluntary approaches have frequently been used in industrialized countries but they pose the problem of low efficiency of pollution abatement (see e.g. Baranzini et al. 2004). More effective incentive taxes on the other hand, were implemented at rather inefficient levels by public administrations or governments, or were not approved of by the electorate in numerous instances. On 24 September 2000, Swiss citizens voted on three different projects relating to taxes on non-renewable energy. While all three projects were rejected at the national level, there were substantial deviations in approval rates on the cantonal level. In a study that was based on survey data, Thalmann (2004) tested for the acceptability of the projects. While individual preferences were able to explain voting choices to a large extent, they cannot account for differences in common characteristics of citizens. We intend to replicate the estimations using communal data to test for the robustness of the analysis and employing the public choice approach likewise. In a second step we will extend the model by including the political power distribution of the communes and other determinants structuring voting choice. Extending our model considerably will provide us with more detailed results on determinants of the dismissal of the different tax proposals. Voting decisions on environmental issues have not frequently been the topic of research, although a small number of scholars have treated these questions. Economists have contributed to the growing literature on the issue (see e.g. Deacon and Shapiro 1975; Hahn 1989; Salka 2001), but in political science research has remained rather scarce (see e.g. Hill and Kriesi 2001; Kahn and Matsusaka 1997). By basing our estimations on macro-level data and combining skills of political science and economics into an interdisciplinary framework, we intend to further this field of research in Switzerland. Following the introduction, chapter 2 will provide a broad overview of theory and existing research on sustainable development-policies in Europe and the United States. We introduce the public choice approach and briefly recapitulate Thalmann’s (2004) results. Thus, chapter 2 will elucidate our framework that we apply to the study. In chapter 3 we will explain the three projects Swiss citizens were to vote upon and give some background on environmental policy- making in Switzerland. We turn to the actual analysis in chapter 4, working with an ‘objective’ model. The model will be extended in chapter 5 to give a more detailed account of what

2 influenced voting choices on the three distinct incentive taxes. In chapter 6 we will review our results and finish off with concluding remarks.

2. Ecologizing the Economy Market-based instruments such as tradable permits3 and emission taxes are heavily favoured and recommended by the scientific community but they have been implemented only marginally by public administrations. Hahn (1989) was amongst the first to treat these questions with regards to industrialized countries. His analysis that command-and-control approaches, i.e. standard levels of emission output, prevail in attaining environmental protection, is still valid today although direct taxes on emissions have become a widely used instrument in Europe and the United States. Ten years after Hahn’s study, Schneider and Volkert (1999: 124) state that environmental policies, if implemented at all, are often enacted with inefficient instruments (see also Kirchgässner and Schneider 2003; OECD 2004). More recently, simulations undertaken by Felder and Schleiniger

(2002) show that a combination of a uniform CO2 tax with differentiated labour subsidies is a better solution to achieve goals of emissions reductions than the presently existing tax schemes. The OECD (2004) claims that environmental protection costs have risen substantially since 1990, although they could have been reduced by 25% through greater use of cost-efficient instruments. The strengthening of sustainable development has therefore come at a cost to the general welfare. The report points out that regulation remains the preferred instrument to control pollution, while voluntary agreements pose the problem of information asymmetry between governments and the industry (OECD 2004: 4-5).

2.1 The Study by Thalmann (2004) Thalmann (2004) based his analysis on survey data collected in the standardised VOX-surveys held after each vote in Switzerland. To identify determinants of participation and vote he estimated sample selection probit models for each referendum separately. We only look at his first estimations, the so called ‘objective’ model, since we are unable to reproduce his ‘subjective’ model with our data. According to his estimations higher education is one of the most important ‘objective’ determinants, followed by language and the size of municipality (more than 50’000 inh.). Household income and the age of voters seem to have only moderate impacts on the vote’s outcome.

3 We shall apply the term ‘tradable permits’, which is predominantly used in the literature today, instead of ‘marketable permits’. 3 By using survey data the study neglects the fact that voters are nested within broader social, economic, and political contexts. Their behaviour is structured by societal subsystems they live in. Moreover, the answers to the survey are not binding and the respondents can easily and for whatever reason manipulate the outcomes. We try to overcome these deficits by using communal data in our study.

2.2 The Public Choice Approach We apply the public choice approach to our study with the objective of clarifying questions pertaining to voters’ choice. The positive theory of public choice takes into account self-interests of different actors, these usually being voters, public administrations, politicians, and the industry or its interest groups. Voters form interest groups to seek advantages from the state and to get favourable legislation enacted, at the same time requiring the state to ensure general welfare and to keep competition at an optimal level. Thus, regulatory influence of the government is considered as a positive approach to externality control: ‘In the public-choice theory of policy, the interests of those who are subjected to the control instruments must be taken into account as well as the interests of those affected by the external diseconomies’ (Buchanan and Tullock 1975: 139). Public choice has regularly been used to explain the implementation of ecological policies in industrialized countries (see e.g. Deacon and Shapiro 1975; Schneider and Volkert 1999; Thalmann 2004). The seminal paper by Buchanan and Tullock in 1975 was essentially concerned with externality control and environmental taxes. They demonstrated that direct regulation is used more frequently than taxes or charges, since it is easier for firms to withdraw from having to pay, if emissions remain under a pre-defined level of output. In the public choice model the voter is rational and thought of as being capable of evaluating a public issue and to choose according to his economic self-interest. We agree with Downs (1957) that, ceteris paribus, voters choose rationally and profit-maximizing when making a political decision; this also holds true for approval or rejection of environmental projects.

2.3 State of research Existing empirical studies will shortly be presented hereafter. It is our objective to clarify our choice of variables and prior research on the topic. Several studies found the level of education to play a crucial role in pro-environment voting choices (see e.g. Deacon and Shapiro 1975; Kahn and Matsusaka 1997; Kriesi 1999; Thalmann 2004). Kahn and Matsusaka (1997) found similar results on voting on environmental issues in 4 California. They were able to show that an environmental good seems to be a normal good, but which is preferred by people working in jobs demanding a higher level of education. Fischel (1979) exemplified this assumption in the late 70s by studying approval rates on the placement of a new pulp mill in New Hampshire. His results show that income, occupation, and education are rather robust determinants of preferences about environmental protection, where people with high income and education prefer green policies. He conjectures that pro-environment voting choices might be divided along economic and social class lines (1979: 115). Similarly, Deacon and Shapiro (1975) find higher education, and income of individual voters to be highly consistent with a favourable stance towards environmental protection. Research by Kahn (2002) on the acceptance of environmental regulation in the United States revealed that education increases approval rates significantly, but that richer households exhibit less support for environmental protection (2002: 46ff.). He presumes more educated people to be more aware of long-term risks of environmental damage, not only to their health but also to the society as a whole. Thalmann (2004) suspects that higher education is needed to understand the complexity of environmental tax proposals and that interest groups are able to mobilize against these projects by referring to the short-term economic costs (2004: 180). He further assumes that people with very high income must take on the burden of environmental protection, which might be a reason for disapproval with highest income groups (2004: 196). The environment seems to be a normal good but which becomes inferior once educational effects have been accounted for. Kahn’s (2002) arguments point in a similar direction, when mentioning that richer citizens are willing to pay for better environmental quality, but that at any given point this trend is reversed, since rich people can afford to live in areas where a good quality of life is maintained (for a similar argument see Kahn and Matsusaka 1997). While education and political affinity (see below) can be shown to have a significant impact on environmental voting choice, the income variable is not uncontested as both Fischel (1979) and Deacon and Shapiro (1975) already noted in their studies in the 1970s. The mixed results of income as a determinant for voting favourably to the environment makes our assumptions about the coefficient less clear than we wished. Our preliminary analysis should be able to reveal what role income plays on voting choices; we do expect richer households to take on a negative stance on ecological policy-making. However, we expect the level of education to be one of the most significant variables in structuring citizens’ voting choice. We know from research that people with leftist and green political affinity prefer environmental-friendly policymaking. As it turns out most studies confirm that political affinity is amongst the variables with the strongest impact on preferences on environmental protection and policy-making (see .e.g. Deacon and Shapiro 1975; Fischel 1979; Kriesi 1999; Thalmann 2004).

5 Recent research by Neumayer (2004) suggests that left-wing parties in industrialized countries are more favourable to environmental issues and that individuals voting for left-wing parties share these beliefs more than their right-wing counterparts. Political power distribution in communes should provide for strong indicators on voting preferences of citizens. A final caveat applies: although many studies confirm the importance of left preferences for green politics, this ideological variable explains little about underlying motivations structuring voting choice. Kirchgässner and Schneider (2003) conclude that self-interested individuals would not be willing to bear costs which are mainly to benefit future generations, which is one of the main obstacles against policies promoting sustainable development. On the other hand we would expect young voters to opt for post-materialist values and therefore be more favourable to environmental policies. Instead of focusing on values like economic security and physical well- being, self-expression and the quality of life become aspects which are attributed more importance to (Inglehart 1977; Inglehart 1995). Deacon and Shapiro (1975) showed that individuals remain self-interested when leaving the market to undergo a voting situation – voting responses on environmental issues were consistent with self-interest. We will try to show that young voters are willing to make economic sacrifices in order to promote sustainable development. Although we would expect great differences in urban – rural attitudes towards green policies, Salka (2001) was able to show that the conflict over environmental protection stems from factors deeper than the urban or rural nature of where citizens live. In his study he examined votes on county-level in California, Oregon, and Colorado suggesting that differences in voting are linked to social and demographic characteristics such as party affiliation, education, age and the economic conditions faced within the county. As Schneider and Volkert (1999) remark, resistance to ecological programs is higher in regions with a higher share of producer interests, because it could lead to lower profits, wages and employment. But they argue that the implementation of incentive-oriented taxes need not necessarily be accompanied by an increase but a shift in the tax burden. Representatives of the industry are officially in favour of environmental policies, but when it comes to their application they remain reluctant. Wallart and Buergenmeier (1996) show that firms do not reject green taxes in general but the instruments need to be formulated very clearly, so as to define precise objectives. In a survey conducted with major companies in Switzerland, more than half of the respondents regarded taxes as the most efficient instrument whereas regulation appeared too costly to two thirds of the firms (1996: 23). Nonetheless, in the vote of 24 September 2000, firms

6 took an antagonistic stance towards the taxes.4 Kirchgässner and Schneider (2003: 377ff.) maintain that businesses prefer command-and-control mechanisms to incentive taxes, where efficiency is very high and distributional questions are less favourable to the industry (see also Buchanan and Tullock 1975; Hahn 1989).5 While studies on voting behaviour in most countries can neglect a specific ‘language’-variable, we need to take into account the dissimilar results in the different language regions in Switzerland. Voting and to some extent election patterns in the German-speaking part of Switzerland usually differ from the ones in the French-speaking part (Kriesi 1996). We cannot overlook this basic fact and will therefore test for language-specific characteristics of voters. Most often the so called ‘Röstigraben’ runs between the German-speaking and the French-speaking part. In a communal analysis on the referendum on increasing the female retirement age in Switzerland (Bütler 2002), this assumption was verified. In Thalmann’s (2004) study the language variable is confirmed, but some caveats apply. Although language most often does play a special role in voting patterns in Switzerland, Anson and Cadot (2004) note that the language cleavage can be weakened when testing for political and economic bases of choice. Accordingly, it is not only the voter’s language that plays a crucial role in voting decisions, but the economic and political beliefs of the voters in the different language regions (2004: 194-195).

3. Environmental policy-making in Switzerland Switzerland has a long standing tradition in semi-direct democratic procedures; its citizens vote up to four times a year on popular initiatives and referenda, and it is a decentralized, federal state with a consensus model of democracy (Lijphart 1999). Direct democracy offers multiple possibilities for environmental interest groups to voice their opposition. ‘Green movements’ have frequently made use of the possibility to launch an initiative for or a referendum against a proposed project. With well established corporatist accommodations it is fairly easy for interest groups to mount resistance against firms and/or authorities polluting the environment or acting carelessly towards it. Due to the relative power of smaller interest groups and associations, there

4 As we can see from the present discussions on the introduction of a CO2 tax, the industry is divided on the future of emission charges. While the industry’s umbrella organisation Economiesuisse and liberal parties officially favour the ‘climate cent’, a big portion of the firms prefers a CO2 tax. This is especially the case for firms already applying voluntary agreements or for these regrouped in ecologically aware associations like SGCI or ÖBU. Labour unions, green parties and green movements favour the CO2 tax. 5 Business interest groups are, owing to their financial backing, not only better organized than environmental interest groups, but also better suited to achieve their goals (Kirchgässner and Schneider 2003; Schneider and Volkert 1999). This goes back on Stigler’s (1971) famous theory of economic regulation which posits that regulation is sought and acquired by the industry and is designed for its main benefits. The relative power of interest groups serves as reference point both to Stigler and Buchanan and Tullock. 7 has been a dramatic increase in initiatives since the 1960s, but only very few of these were able to gain a majority of votes (Kriesi forthcoming).

3.1 The three proposals of 24 September 2000 The vote on 23 and 24 September 2000 was on three distinct proposals for a new tax on non- renewable energy. One of the three projects was a popular initiative, the other two were counter proposals prepared by the administration and approved by parliament after modification. All three proposals provided for full or partial exemption from the tax for industries heavily dependent on non-renewable energy. What follows is a short overview of the three different proposals. The solar initiative would have levied a tax during twenty-five years of CHF 0.005/KWh on fossil and nuclear energy. Revenues would have been equally distributed for the promotion of solar energy and for energy conservation. Parliament and government rejected the initiative and presented a counter proposal, the energy conservation package. The counter proposal envisaged a tax of CHF 0.003/KWh during maximum fifteen years on non-renewable energy to be redistributed to the promotion of renewable energy and hydroelectric plants. As it was a counter proposal by parliament, support of a majority of the National Council and the Council of States to the initiative was guaranteed. Citizens had to choose between the two if both were to be accepted at the ballots. The initiative was rejected with 31.3% of ‘yes’ votes, whereas the counter proposal received 45.3% of positive votes. In these two projects, the revenues would have been redistributed in the form of subsidies for the production of sustainable energies. The third project, the so called green tax reform, was designed as a counter proposal by parliament to the withdrawn energy-environment-initiative. Of the three it would have had the strongest impact on prices, since it provided for a tax of CHF 0.02/KWh on non-renewable energy; its revenues would have been used to lower social security contributions. This type of revenue recycling has the goal of making proposals more acceptable for voters and to minimize distortions. Approval rate was at 44.5%.6 For the sake of completeness it must be noted that the participation rate of the vote, which was at 44.8%, might to a great extent be due to the controversial initiative for a cap on the percentage of foreigners in Switzerland. The ‘18-percent-initiative’ certainly was able to mobilise a big portion of voters, as it was highly controversial and focused most of the media’s attention. It

6 All information on the proposals stems from the official bulletin of the Federal Council for the vote of 24 September 2000. For additional, more detailed information on the proposals see also Thalmann (2004). Approval rates are from the Swiss Federal Statistical Office and differ slightly from these cited in Thalmann (2004). 8 is therefore hard to disentangle the participation effects from the other votes7 on the same day from participation rates concerning our objects of interest.

3.2 CGE Simulations In order to have a clearer picture of the three proposals we simulate the respective impacts of the energy taxes on the Swiss economy. Different economic activities depend on non-renewable energy in very different proportions and it is therefore not always clear, who would suffer from the introduction of a green tax. Moreover this raises the question of international competition, for which a partial equilibrium analysis is clearly insufficient. Therefore, we include the results of simulations undertaken with a Computable General Equilibrium model (CGE) (for a detailed description see Bernard, Vielle and Viguier 2005).8 Figures reported in the tables are percentage variations relative to the ‘business as usual’ scenario, estimated for the year 2010. These simulations shall figure as benchmarks and not as predictions. In our case the absolute impact on production is not that important, but rather the relative impact on the different sectors of economic activity. It will enable us to make comparisons with employment compositions of the communes and the outcomes in their votes. Tables 1 and 2 are two different scenarios tested. The first table introduces constraints in all other countries so that global emissions respect the Kyoto protocol, but not in Switzerland where only one of the projects is implemented. In this case, the level of the three proposals is low compared to international constraints. This implies a very different situation for Switzerland, as this would modify the terms of trade and results would even be in its favour. Even the green tax reform, the highest tax scheme amongst the three, would have had relatively little constraining effect. The second table represents the case where one of the three proposals has been accepted and implemented without any other constraints in any other country. Put differently, no country would introduce emission reduction policies such as taxes or tradable permits apart from Switzerland. While in table 1 some positive effects were noticeable, impacts of taxes in table 2 remain very small and even the small positive effects on electricity production are negligible.

7 Besides the four aforementioned projects, a fifth proposal was presented at the ballots, the ‘Initiative for a constructive referendum’. The participation rate for the ’18-percent-initiative’ was slightly higher, at 45.3%. 8 The model and the estimations were kindly provided by Laurent Viguier; we are very grateful for his support in this research. 9 Table 1: Simulated effects of the three taxes on sector-specific production in Switzerland in 2010; with the Kyoto protocol

Solar Energy Green Tax Initiative Conservation Reform

Oil 3.82% 1.57% -12.61% Petrol -1.50% -2.27% -7.29% Electricity -0.57% -0.56% -0.49% Agriculture -0.13% -0.13% -0.14% Minerals -0.15% -0.21% -0.54% Chemicals 0.15% 0.12% -0.05% Metals 0.63% 0.59% 0.39% Paper -0.08% -0.10% -0.25% Transport -0.20% -0.33% -1.20% Sea Trans. -0.84% -0.89% -1.27% Air Trans. -0.55% -0.96% -3.79%

Total -0.06% -0.08% -0.21%

Table 2: Simulated effects of the three taxes on sector-specific production in Switzerland in 2010; Switzerland only

Solar Energy Green Tax Initiative Conservation Reform

Oil -2.98% -4.87% -18.58% Petrol -1.07% -1.75% -6.92% Electricity 0.01% 0.02% 0.09% Agriculture 0.00% 0.00% -0.01% Minerals -0.08% -0.12% -0.47% Chemicals -0.04% -0.06% -0.23% Metals -0.04% -0.07% -0.28% Paper -0.03% -0.05% -0.20% Transport -0.17% -0.28% -1.18% Sea Trans. -0.07% -0.12% -0.51% Air Trans. -0.55% -0.91% -3.81%

Total -0.03% -0.04% -0.17%

10 4. Objective Analysis

4.1 Variables In the first specification of the model which replicates Thalmann’s (2004) analysis, we will only use ‘objective variables’, which are all directly comparable to the ones used on the individual level. Objective variables are presented hereafter; reasoning on variables is always made ceteris paribus. Whereas dummy variables were used, we apply proportion data to reflect the socio- economic composition of the communes. All data was taken from the 2000 census by the Swiss Federal Office for Statistics.9 Sex is given by the proportion of females in commune i. The sex variable did not have significant impact on the votes in Thalmann’s (2004) analysis; we do not expect the coefficient to have an important impact in our estimation either. Young is the proportion of 20 to 30 year old voters in the commune i. In Thalmann’s study it was represented by a dummy variable for an individual between 18 and 30. Although this variable was not significant on the micro level, we could expect young voters to follow the post- materialist hypothesis formulated earlier (Inglehart 1995). Elderly represents the 60 year old and over. The variable was significant and had a negative impact on the acceptance of the three projects. We will see if we can confirm the assumption about the elderly not wanting to carry costs for future generations (see Kirchgässner and Schneider 2003). However, we do not expect an important impact for either of the two age variables. Language is given by the proportion of the French-speaking population in the commune i. As the French-speaking communes rejected the three proposals more heavily than their German- speaking counterparts, we do expect a negative sign of the coefficient10. Education is the proportion of residents with a high school degree, higher professional degree or university degree, which is the direct counterpart of Thalmann’s measurement. It proved to be highly significant for the three proposals and it had the strongest absolute marginal effect. We expect the coefficient for the variable education to be significant and positive. Municipality size is a dummy variable for communes with more than 20’000 inhabitants (=1), whereas Thalmann (2004) set the limit at 50’000 inhabitants. It is a rough indicator for urbanity and according to his study we expect the coefficient to be positive and significant. Income is measured by net taxable revenue per tax-payer from the year 1994 and is expressed in thousands of Swiss francs. Thalmann (2004) found income to have a negative impact on the

9 Obvious weaknesses of contextual data are the danger of committing an ecological fallacy: taking conclusions from macro-level data to explain micro-level correlations. A loss of information can be an effect of using aggregate data where the original structure of the data is neglected. Finally, researchers contend that it is individuals who act, not aggregates (Bühlmann 2004). 10 See VOX No. 71 (Ballmer-Cao et al. 2000) 11 votes but the variable was only significant for the Solar initiative. It might be hard to prove a clear-cut trend with the respective variable, as previous research has not been able to provide consistent findings on the regressor (Fischel 1979). But recent findings suggest small negative effects (Kahn and Matsusaka 1997). The other variables contained in the survey had no direct counterpart on the communal level, so we will test comparable hypotheses in the second part of our model. Finally, the dependent variables represent the share of favourable answers for each ballot respectively and the mean participation rate11.

4.2 The econometric model We now turn to the formal description of the estimation. As mentioned in Anson and Cadot (2004), the respect of the simultaneity is crucial when performing the estimation. We model explicitly participation and votes as a joint decision by voters. The individual data allows taking into account the sample selection between voters and non-voters for each of the objects. Aggregate data suggests viewing the three propositions as a simultaneous choice made with the same amount of information, only indirectly linked with the participation decision12. We perform a Seemingly Unrelated Regression Estimation (SURE), representing each of the three projects by separate equations, and participation as a fourth decision. As the dependent variable is a proportion that represents a grouping of binary responses, it should ideally be estimated through a discrete response model. A simple way of avoiding the problems of a linear estimation of a proportion is to transform the dependent variable through a logistic function. Thus we have

y0 y1 = ln( ) = α + xi β 1− y0 where y0 is the observed proportion, and y1 is called the logit of y0. Among other things, this transformation ensures that predictions are bound to the [0,1] domain. On the other hand, it will prevent a direct interpretation of the value of the parameters. Since this model is heteroscedastic by construction, a two step procedure is adequate13. Formally, let S represent the solar initiative, E the energy conservation package, G the green tax reform and P the participation. The logistic transformed dependent variable is noted y, the vector

11 We do make the assumption that citizens decided to participate in the three ballots or did not participate at all. As there was no substantial variation in the participation rates, we believe this simplification does not influence our estimation. 12 Other projects were presented on that day at the federal, cantonal, and communal level. 13 Various weights are used in the literature. We follow Bütler (2002) as she had a very similar setting; we define the 0.5 , weights w i = [n i yˆ i (1- yˆ i )] where n i is the population and yˆ i is the OLS estimated proportion. See Greene (1999) for detailed descriptions and further discussion. 12 of explanatory variables is represented by X and is the same for each equation. In the participation equation, we include a dummy variable S to reflect for the obligation to vote in the canton of Schaffhausen. Finally, i being an index for the communes, the estimated equations are

0 0 0 yiS = α S + X i β S + uiS (1)

0 0 0 yiE = α E + X i β E + uiE (2)

0 0 0 yiG = α G + X i βG + uiG (3)

0 0 0 0 yiP = α P + X i β P + Si β Ps + uiP (4)

The different specifications for the participation equation and therefore the different set of explanatory variables makes it possible to include more information about the covariance structure between the error terms of the four equations. This elaborate covariance structure typically arises if there is a common factor to all equations that is not or cannot be included. This specification fits particularly well our data as we cannot account for every single vote which took place on that particular day. Before taking a look at the estimation results, the potential risk of multicollinearity among the communal variables must be kept in mind when interpreting coefficients and standard-errors.

4.3 Estimation results The coefficients and standard-errors for the estimation of equations (1) to (4) are reported in table 1. The signs of the coefficients are mostly congruent with the findings of Thalmann (2004). The relatively small part of the variance explained by our variables is not very surprising, as it is only a small part of the model we have in mind. However, the F-statistic tells us that the model has a god fit and the variables prove to be almost all significant at the 1% level. The variance- covariance matrix is significantly different from a diagonal matrix, which confirms the implicit link between the equations. Most importantly, we can confirm the importance of education when it comes to the acceptance of green taxes. The sign of the coefficient is always positive which implies that communes with a higher share of voters with at least a high school degree are more likely to accept environmental taxes. From table 5, which displays the marginal effects evaluated at the Swiss mean, we can see that this variable has the strongest absolute magnitude on the outcome of the vote in each commune. Ceteris paribus, a 10% raise in the proportion of highly educated people would imply a 5% augmentation in the approval rate of the Energy conservation package.

Table 3: Objective model, estimated parameters for votes and participation by municipalities; seemingly unrelated regressions, logistic WLS

Explanatory Variables Solar initiative (1) Energy Cons. (2) Green tax reform (3) Participation (4) Mean of variable Standard Standard Standard Standard Coefficient Coefficient Coefficient Coefficient (unweighted) error error error error

Sex 0.505 2.761** 0.433 1.553** 0.39 1.844** 0.398 -1.796** 0.349 Young 0.178 0.075 0.267 0.492* 0.24 0.374 0.245 -0.487* 0.216 Elderly 0.249 0.768** 0.167 0.677** 0.15 0.667** 0.153 -0.423** 0.134 French speaking 0.231 -0.465** 0.021 -0.318** 0.189 -0.715** 0.019 -0.029 0.017 Education 0.155 2.471** 0.14 2.515** 0.127 2.461** 0.129 0.785** 0.113 Household income 22.258 -0.012** 0.196e-2 -0.012** 0.177e-2 -0.895e-2** 0.18e-2 0.017** 0.158e-2 Municipality size 0.062 0.336** 0.031 0.202** 0.028 0.271** 0.028 0.068** 0.025 Schaffhausen 0.01 - - - 0.986** 0.054 Constant -2.633** 0.214 -1.438** 0.193 -1.604** 0.197 0.344* 0.173

Size of sample 2845 2845 2845 2845 Adjusted R2 0.24 0.23 0.37 0.11 F-statistics 128.55 120.32 246.80 44.14

*=significant at 5% level, **=significant at 1% level. All data provided by the Swiss Federal Office of Statistics.

The language variable has a negative impact, which confirms the assumption that the French- speaking citizens accepted the taxes to a lesser degree, whereas Thalmann obtains contrary results. This seems to be counter-intuitive since French-speaking voters rejected the taxes more heavily. The taxable income also plays a role when voting on environmental taxes and the coefficient has a negative sign. This is in line with recent findings on the income variable and the literature. However, the impact is quite small and the evident link with other characteristics of the communes makes the analysis of this effect quite risky. Finally, people living in big towns are more likely to accept the taxes – we hereby confirmed Thalmann’s finding. The coefficient for young voters is no clear determinant in this model. It is positive, but only significant at the 5% level for the Energy conservation package. For the elderly voters we do not find the same pattern as in Thalmann (2004), showing that in communes with a higher share of elderly voters, green taxes are more likely to be supported. However, the effects of the two age variables are quite small. This preliminary model shows that we can retrieve a similar pattern as with individual data, hence proving the robustness of previous findings. The proportion of highly educated people has the biggest impact on the outcome of the vote. We find a very similar pattern for the three different tax schemes. This corresponds to the fact that a majority of the citizens either accepted or rejected the three projects in block14.

5. Extension of the Model With the extension of the model, we do not argue that we will render invalid earlier analysis (Thalmann 2004) nor the first part of our model, but an expansion of this work will prove insightful in understanding better the refusal of the three proposals. We will test hypotheses on voters’ political affinity and the influence of the means of transport, as well as others that were not verifiable with survey data. By comparing the results with the CGE simulations presented in part 3.2 we will make the link between the employment distribution in each commune and their acceptance of the green taxes.

5.1 The econometric model The estimation method is essentially the same as for the objective model. We tried several other econometric specifications to test the robustness of our approach. The same pattern for the

14 See VOX No. 71 (Ballmer-Cao et al. 2000) variables’ coefficients and standard-errors were retrieved across all estimation techniques tested15. Nevertheless, we find the intuition behind the SURE approach to be more intuitive for the situation we want to model. For practical reason, we slightly modify the notation of the vote equations to account for the groups of variables we include in the analysis. NE represents the non-economic variables, including sex, young, elderly, French-speaking, education, urbanity, and leftist and green voters. The vector E stands for all economic variables which are revenue, cantonal fiscal index, price of electricity, use of a private car, and employment sectors. Finally, the participation equation is completed with the average participation for the five preceding referendum days16. We can write the estimated equations as:

0 0 0 0 yiS = α S + NEiδ S + Eiγ S + uiS (1)

0 0 0 0 yiE = α E + NEiδ E + Eiγ E + uiE (2)

0 0 0 0 yiG = α G + NEiδ G + Eiγ G + uiG (3)

0 0 0 0 yiP = α P + X i β P + Si β Ps + uiP (4)

5.2 Variables The above analysis demonstrated that the model is not badly fitted but that the explanatory power can still be improved. In addition to the variables already presented, we include the following. Political power distribution of the communes will be measured as the share of votes gained by leftist and green parties in the national elections in 1999. As the vote on the energy tax took place in the year 2000, we will use the figures from the national election in 1999. According to the literature presented above, we expect a higher share of leftist and green voters in a commune

15 We tried a grouped probit estimation equation by equation and weighted and 3sls with a specification similar to the one used in Anson and Cadot (2004). The drawback of the first method is the non-simultaneity of the estimation and for the second, the loss of information through the use of instrumental variables is greater than the gain of including the participation as an endogenous variable. 16 This specification for the participation equation is taken from Weck-Hannemann (1990). The use of this variable does not explain the choice of participation, but stands for the determinants that are not specific to the ballots of the day. 16 to have a significant positive impact on the approval rate17. This is clearly an ideological variable and has little explanatory power per se (see section 2.3). Primary means of transportation shall represent people’s behaviour concerning their use of public or private transport. In the census of the year 2000 people had to indicate their means of transportation to go to work. We base our variable on the people who use their car as the main mean of transportation. All other things being equal, we expect this variable to have a strong negative impact and it should account for a large part of the communal variance, since the frequent car user would carry a relatively high share of the tax burden. Thalmann (2004) accounted for this by measuring the number of cars per respondent. He demonstrated the important role of car ownership in his study. Level of taxation is an index of the fiscal burden in each canton, with 100 being the benchmark for Switzerland18. There is substantial variation in cantonal taxation and this variable could make the link between green taxes and the traditional fiscal schemes. Although we do believe citizens to base their decision on the level of taxation, we do not expect a large impact of the variable. Price of electricity varies in the respective communes. As the price is not directly observable, we proxy the variations by an average price for households in each canton19. We do not expect a major impact of the variable but it shall prove insightful to see whether people had in mind the price they pay for electricity when voting on an energy tax. Obviously, communes facing a lower price should be more willing to pay for the environment compared to the ones where the electricity bill already constitutes a larger part of the spending. Thus, we expect a negative sign of the coefficient. Sectoral configuration of the communes20 is an indicator for the distribution of the active population in the different industrial sectors for the year 1998. We only look at the sectors we presented in the CGE simulations in section 3.2 to be able to compare the coefficients with the impact the tax would have had on these sectors.

17 Not every political party presents itself in every commune. When the party has no chances of gaining any of the seats it does not make the effort to participate as for instance, the Socialists in some communes in central Switzerland. 18 We proxy the communal fiscal rate through the Cantonal Fiscal Burden index provided by the Federal Administration of Finances for the year 2001. 19 This data was provided by the Department of Economic Affairs (Price Supervisor). These figures relate to a mean price for the category H3 for the year 2003. Data for the year 2000 do not exist. 20 The data for these variables was kindly provided by José Anson. For complete description see Anson and Cadot (2004). 17 5.3 Estimation results The estimated coefficients and standard errors are displayed in table 4, marginal effects in table 5. The effects of the main determinants of the objective model are quite robust with this new specification. The impact of education even increases after controlling for other communal characteristics. We mentioned above that education provides for the capacity to evaluate risks and long-term costs of environmental quality, as well as to resist to short-term interest groups arguments. It is therefore reasonable to believe citizens’ ability to assess ecological issues to increase with higher schooling. The competence of the voter to understand the information presented concerning environmental quality can be assumed to rise with the educational level. The income and French-speaking proportion variables are also stable in this specification as their coefficients remain negative and significant. Taking into account societal factors influencing ecological consciousness in Switzerland is necessary to clarify some aspects regarding the heavy rejection by French-speaking citizens: whereas environmental issues and the political debate surrounding them have a great impact in German politics, their position in France is somewhat more modest. Traditionally, language groups in Switzerland orientate themselves with their neighbouring language homologues. Germany has been at the forefront in implementing green policies and its green party is even represented in government. The resistance to nuclear technology in the late 70s laid the groundwork for a strong environmental movement inside and outside the political arena. This might to some extent account for the reasons why French- speaking voters’ demand for green policies is smaller than the Swiss-Germans’ demands. There are some interesting departures from the first model, though. The impact of the proportion of women is still strong, but was cut almost by half, which supports the assumption that other parameters are hidden behind this ratio. While we are unable to account for this effect in its entire scope, we believe the factors of motherhood and its link with more general health matters to be important. But by definition variance for this variable between communes is very small, which reassures us that we must not attach too big of an importance to it. Another striking result is that after controlling for economic and political effects, urbanity turns out to be insignificant for two of the three projects. This reflects the fact that the differences between urban and rural housing are actually more profound and rely much more on lifestyle differences (see also Salka 2001). Moreover, the hypotheses about the young and old age groups cannot be verified and might also stem from differences in the standard of living. For the rest of the explanatory variables, it is instructing to separate the non-economic from the purely economic variables. When estimating separate models, it appears that the groups of variables both account for half of the explained variance. Put differently, neither non-economic

18 nor economic parameters alone account for the decision. This implies that the decision on this issue is a complex interaction between personal characteristics and economic interests. The main political variable, the percentage of votes gained by leftist and green parties in the national elections is a strong positive determinant. As already mentioned, this variable contains little information because it is purely ideological. It is therefore hard to interpret this coefficient. Turning to the economic variables, we observe the level of fiscal imposition to be significant for all three projects. But the estimated marginal effect is so small, that even an enormous fiscal difference in strictly identical communes would not produce a remarkable difference in their respective votes. Thus, our data suggests that there is a statistical relation between the level of taxation and the acceptation of ecological taxes but that the effect is almost zero. This could mean that voters did not see these projects as being additive taxes but really noticed the environmental emphasis. The price of electricity is also significant and negative. Its interpretation is straight forward; people paying more for electricity are more sensible to a raise of its price. Note that the impact of this variable is also very small. The use of a personal car as main means of transportation has a strong negative impact and is almost the same for the three projects. At the Swiss mean, the marginal effect tells us that a 10% decrease in the share of people dependent on their car would raise the proportion of ‘yes’ by 2.5%. The importance of private transport is revealed with this regressor and it relates directly to Thalmann’s findings on the number of cars. Like him we found that the parameter has the strongest effect in the case of the Green tax, where the level of the tax is highest. People who rely heavily on their car to go to work demonstrated their unwillingness to pay more for commuting – as long as public transport does not pose a cheaper or equal alternative to private commuting, this group’s voting behaviour will remain stable. The six economic sectors we included would all have been touched by an energy tax. The coefficient for proportion of workers in the oil and petrol production, paper production, and mineral and metal production are very strongly negative. They also have the highest diminution in production given the simulations. This is an interesting point to note: though all taxes would have exempted industries relying heavily on energy, we find that communes with a higher share of people working in it tend to reject green taxes more heavily. For the electricity sector, the conclusion is less clear. The relation is only statistically significant in the Solar initiative decision. One reason for this behaviour could be that the solar initiative was about subsidizing solar energy, whereas the Energy conservation proposal foresaw to subsidize hydroelectric power, too. Moreover, the simulations in section 3.2 tell us that the taxes are almost neutral for the

19 production in this sector. The same applies for agriculture as the variable has only a small effect and is not significant for two of the three projects. Surprisingly the transport sector is significant and positive for all three projects. We would expect people working in heavy freight transportation and the like to oppose the taxes, since these make the use of their services more expensive. A possible explanation lies in the fact that a great proportion of these people work in public transport. Consequently they have no real incentive to refuse the taxes as they could eventually gain from more expensive private transport, raising the demand for public transport. Our model was tested with data for unemployment and proportion of houses consuming non-renewable energy for heating, too. Both measures were insignificant. On the contrary, when including the communal results for another ecological referendum as an explanatory variable21the adjusted R2 increases considerably. To our belief, this last point illustrates that there might be an environmental awareness proper to all communes which is not directly measurable. The result of a pure ecological ballot could display such characteristics, but it still does not give information about why the voter chose to ‘support’ the environment. Directly speaking, one choice does not explain the other. Finally, the estimates for the three equations are again very close to one another. The difference between the three equations resides mainly in that the fit of our model is better for the Green tax reform. This result is interesting, because this project was the closest to a real incentive tax. It provided no subventions to economic activities and can be assumed to be less distortionary. Thus, the model we propose is particularly instructing in the case of a real incentive tax with equally distributed revenue recycling.

21 12 March 2000: Initiative on the cut of traffic by half; 18 May 2003: Initiative for an exit from nuclear power 20 Table 4: Expanded model, estimated parameters for votes and participation by municipalities; seemingly unrelated regressions, logistic WLS

Sex 0.505 1.428** 0.401 1.144** 0.375 1.023** 0.374 -0.273 0.227 Young 0.178 -1.230** 0.263 -0.742** 0.245 -0.929** 0.245 0.297* 0.140 Elderly 0.249 -0.11 0.158 -0.352* 0.148 -0.361* 0.147 -0.459** 0.087 French-speaking 0.236 -0.274** 0.023 -0.195** 0.022 -0.59** 0.021 0.292** 0.012 Education 0.156 1.948** 0.137 2.1** 0.123 1.989** 0.127 -0.11 0.075 Household income 23.301 -0.016** 0.186e-2 -0.012** 1.734e-2 -0.911e-2** 0.173e-2 0.011** 0.104e-2 Municipality size 0.064 0.064* 0.028 -0.03 0.026 0.014 0.026 0.055** 0.016 Leftist and Green 0.253 1.22** 0.06 0.662** 0.056 0.829** 0.056 - - Fiscal imposition 104.3 -0.133e-2** 0.498e-3 0.225e-2** 0.465e-3 0.21e-2** 0.464e-3 - - Price of electricity 17.227 -0.688e-2* 0.332e-2 -0.018** 0.31e-2 -0.012** 0.309e-2 - - Means of Transport 0.494 -1.08** 0.074 -1.07** 0.069 -1.152** 0.069 - - Extraction sectors 0.225e-3 -3.383 2.2 -4.285* 2.053 -4.761* -2.322 - - Electricity sector 0.797e-2 -2.223** 0.452 -0.214 0.422 -0.692 0.422 - - Agriculture 0.078 -0.232** 0.088 0.402e-2 0.082 -0.086 0.081 - - Paper 0.484e-2 -3.4** 0.656 -2.847** 0.612 -2.279** 0.611 - - Chemicals 0.023 0.703** 0.3 -0.272 0.187 -0.165 0.187 - - Mining industry 0.041 -0.5** 0.191 -1.203** 0.178 -1.013** 0.178 - - Transport sectors 0.025 1.637** 0.382 0.833* 0.357 0.48 0.356 - - Schaffhausen 0.01 - - - 0.269** 0.036 Inertia 0.402 - - - 3.631** 0.058 Constant -0.863** -0.192 -0.234 -1.813**

Size of sample 2768 2768 2768 2768 Adjusted R2 0.43 0.38 0.52 0.64 F-statistics 117.60 95.54 168.69 552.26

*=significant at 5% level, **=significant at 1% level. All data provided by the Swiss Federal Office of Statistics. Table 5: Marginal effects evaluated at the Swiss Mean

Solar Initiative Energy Conservation Green Tax Reform

Objective Expanded Objective Expanded Objective Expanded

Sex 0.485** 0.355** 0.350** 0.275** 0.414** 0.250** Young 0.005 -0.233** 0.080* -0.181** 0.054 -0.223** Elderly 0.057** -0.023 0.116** -0.086* 0.104** -0.088* French-speaking -0.027** -0.056** -0.047** -0.048** -0.090** -0.143** Education 0.222** 0.456** 0.498** 0.520** 0.447** 0.495** Household income -0.001** -0.003** -0.002** -0.003** -0.001** -0.002** Municipality size 0.021** 0.013* 0.031** -0.007 0.038** 0.003 Leftist and Green 0.281** 0.165** 0.207** Fiscal imposition 0.000** 0.001** 0.001** Price of electricity -0.001* -0.004** -0.003** Means of Transport -0.179** -0.241** -0.253** Extraction sectors -0.706 -1.061* -1.174* Electricity sector -0.460** -0.053 -0.171 Agriculture -0.048** 0.001 -0.021 Paper -0.705** -0.705** -0.561** Chemicals 0.148** -0.067 -0.041 Mining industry -0.103** -0.297** -0.249** Transport sectors 0.347** 0.207* 0.119

*=significant at 5% level, **=significant at 1% level.

22 6. Conclusion Our objective, as outlined at the beginning, was to replicate survey-data findings with communal data. We succeeded to obtain very similar results with our data which confirms the findings in the literature (Fischel 1979; Vatter 1994). Using the public choice approach, which is often applied in ecological economics, helped us identifying the objectives individual voters pursued. We made use of a SURE model, which differentiated between the vote’s decision and the participation. This estimation technique was the most intuitive for this setting, as participation is not directly endogenous because of additional ballots that were called to vote upon. Enlarging our model with political and socio-economic regressors proved to very important, as we were able to observe the important impact of the industrial sectors people work in and on the other hand, the negligible role the fiscal rate and the price of energy play. While it might seem highly hypothetical to forge a link between the level of education and the blue-collar sectors under study, we nonetheless get the impression that the projects were not understood by many of the voters. Exactly these industries relying heavily on energy supply would have been freed from the obligation to pay the taxes, meaning that their work situation would not have been altered. This message seems not to have got across, as rejection rates were increased by energy-intensive sectors. The findings of this paper can be summarized as follows: we showed that higher education, political affinity, the means of transportation, sex, and language are the main determinants of the vote, whereas urbanity, the price of energy, and fiscal imposition basically play no role in the voting choice. However, there is no single variable reflecting environmental consciousness proper to the population. We believe our results to be of great importance to the growing literature on referendum voting and on environmental policy-making. Not only does this research possess novel character but it can also be put in direct relation with similar research in political science and economics (cf. Anson and Cadot 2004; Fischel 1979; Kahn and Matsusaka 1997; Vatter 1994). Voters in Switzerland seem to have a clear stance on market-based ecological taxes. As long as these taxes do not interfere with personal lifestyle and voters have the necessary education to assess the risks a damaged environment poses to them, their introduction becomes plausible. But even though people with leftist and green belief systems are favourable to green taxes, self- interest prevails in structuring individuals’ voting choice. The Green tax reform, providing for revenue recycling through a lowering of social security contributions, was close to being approved although it imposed the highest tax rate. To the rational voter this sort of redistribution outweighed the costs the tax would have imposed. Furthermore, our model predicts that rather small variations in the population’s characteristics could have lifted the outcome of this project above the 50% limit. This remarkable fact must be kept in mind when designing green taxes in the future – nonetheless, the likelihood that voters are willing to sacrifice economic well-being for environmental quality remains rather small.

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