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It states on Wikipedia:

A Pigovian tax (also called Pigouvian tax, after economist Arthur C. Pigou) is a tax imposed that is equal in value to the negative externality. The result is that the market outcome would be reduced to the efficient amount. A side effect is that revenue is raised for the government, reducing the amount of distortionary taxes that the government must impose elsewhere. Governments justify the use of Pigovian taxes saying that these taxes help the market reach an efficient outcome because this tax bridges the gap between marginal social costs and marginal private costs.

Q: When it says, "A side effect is that revenue is raised for the government, reducing the amount of distortionary taxes that the government must impose elsewhere", what does that even mean?

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The Pigovian taxes are non-distortionary. For example imagine situation where government optimal spending is 100e and before Pigovian tax all 100e was raised through income tax which creates distortions on Labour market. Let’s say that after imposing Pigovian tax government gets additional 30e. Now since government needs only 100e for its optimal spending it can either choose to run 30e surplus or choose to reduce the distortionary income tax by 30e. The Wikipedia sentence refers to this second option where government chooses to reduce some other distortionary tax thanks to the revenue from Pigovian tax.

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    $\begingroup$ +1 for completeness let me just mention that this feature is called the double dividend hypothesis and that whether or not it actually occurs is debatable (at least in a general equilibrium framework) $\endgroup$ – Maarten Punt Jan 22 at 15:26
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    $\begingroup$ Whether or not it actually occurs is more of a policy decision than a debate. See, e.g., nber.org/papers/w6199 $\endgroup$ – heh Jan 22 at 16:09
  • $\begingroup$ Yes these are all good points +1 to both of your comments $\endgroup$ – 1muflon1 Jan 22 at 16:20

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