Taxing household waste: intended and unintended consequences

Biodegradable waste constitutes the largest single fraction of municipal solid waste, poses treatment and land-filling problems and is subject to specific targets in European Union member states. Despite the environmental and economic benefits of home-composting and its potential to contribute to a circular economy, the determinants of this particular waste stream, and the potential of a waste tax to induce it, has received little attention in economics. The present study specifically examines the potential of a waste tax to reduce biodegradable waste and encourage substitution into composting. Furthermore, with a view to examining the wider potential effects of the tax, the study also tests possible unintended consequences. These include the effect of a tax label (calling it a tax as opposed to a fee), the potential that the tax stimulates illegal waste disposal intent and the risk that the tax crowds out moral motivation to compost voluntarily. Data is drawn from a nationally representative survey (n = 1,037) in Malta, in which respondents were randomly assigned to different tax treatments. The study finds that in the absence of a tax, access to a garden or rural area enhances the probability of composting, while perceptions of nuisance significantly suppress it. The introduction of a fee and raising its level, but also simply labelling it as a “Pay as You Throw Tax” significantly reduce waste disposal intent, encouraging substitution into home-composting. The findings also suggest, however, that there is a significant risk of stimulating illegal waste disposal intent. Substitution is mainly driven by the reactions of household members that hold government in low trust. Higher taxes also negatively impact moral motivation among some households. These findings suggest that introducing waste taxes may generate behavioural reactions beyond those that respond to price. Some of these can partly off-set the expected economic benefits of waste reduction and composting.