Tax incentives and environmental performance: The pay-as-you-throw policy in Emilia-Romagna, Italy

This study investigates the impact of implementing the pay-as-you-throw policy as a fiscal incentive mechanism for municipal waste management across municipalities in the Emilia-Romagna region, Italy. Utilizing panel data from 2010 to 2022 and employing a synthetic control with staggered treatment adoption, we evaluate the policy's effects on environmental and local public finance performances. Our findings reveal that treated municipalities witness an average 10% increase in separate waste collection alongside a parallel reduction in municipal waste production since the policy outset, equating to approximately 60 kg per capita annually. Furthermore, our analysis indicates that the policy enables local governments to reduce current energy and environmental expenditures by roughly <euro>130 per capita annually in our optimal model. Notably, results hold robust across three recently developed estimators using difference-in-differences with staggered treatment adoption over time. The policy proves overall effectiveness in promoting circularity within municipal waste management systems, leading to better environmental performances, and decreased environmental management expenses. These implications underscore the potential value for local governments to adopt similar strategies where not yet envisaged.