Most employees will not want to admit that they're incompetent at what they're doing, nor will they want a demotion. A promotion gives a sensen of entitlement, and if an individual actively strived for a position they will not want to let it go.
Now if someone was given a random promotion and it turned out to be a bad fit, that individual may be more willing to step back down.
I'd wager that most people desire promotions for the increase in compensation, not responsibilities. Perhaps a slight decoupling of promotions and raises is in order.
This inevitably becomes "just get more raises" though. Very few would accept an increase in responsibilities (and the correlated increase in risk that you'll not be very good at your new job) without a comparable increase in salary, even if it comes with a shiny new title.
No need to give more raises--just make them independent of promotion. If you get promoted and do an satisfactory job in your new role, /then/ you get a raise. Otherwise you go back to your old role with no change in compensation. People are willing to take a risk that they won't be good at their new job as long as the downside is limited to demotion without a decrease in compensation.
Now if someone was given a random promotion and it turned out to be a bad fit, that individual may be more willing to step back down.