5 votes

Externalities, Pigouvian Taxes and Wikipedia

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 ...
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Pigouvian tax with general utility function

The first order condition for individual $a$ when the price of $y$ equals $p_y(1+t)$ is given by: $$ \frac{\partial u_a}{\partial y_a} = p_y(1+t) \left(\frac{1}{p_x} \frac{\partial u_a}{\partial x_a} \...
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4 votes

A market correction for an industry which has had long-run negative externalities

An aspect of the matter could be described as follows: We want prompt replacement of (existing) fixed capital because, I guess, it creates currently "unacceptable" levels of negative externalities,...
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Could a carbon tax be a substitute for VAT?

No, taxing externalities is not a good substitute for VAT for several reasons. Pigovian taxes (taxes on externalities) have to be set up in an optimal way to actually reduce externalities. However, ...
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Are there any drawbacks to a hypothetical climate policy?- Carbon tax for reducing Income tax

Prominent economist Greg Mankiw has been a prominent advocate of the kind of change you describe (he invites people to join "The Pigou Club", named for Arthur Pigou who first proposed these kinds of ...
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What are the current economic theories of product advertising?

There is a vast literature in both economics and marketing on advertising. Some highlights relevant to your specific question: A classic paper (Grossman and Shapiro 1984) looks at competitive ...
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Who pays externalities?

If negative externalities are priced into the market via a pigouvian tax, then those responsible for the negative externalities pay. As a whole, the public is better off. Firstly because the market ...
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2 votes

Are there any drawbacks to a hypothetical climate policy?- Carbon tax for reducing Income tax

I think it's broadly a good idea; but as you've asked specifically for the downsides, here you are: Having a steadily increasing carbon tax can actually accelerate the rate of investment in fossil ...
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2 votes

Pricing a negative externality under high uncertainty and severe non-linearity

This should probably be a comment, but it's too long so I am posting it as an answer. I'm not sure I necessarily agree with "[A Pigouvian tax] is a fixed unit price, which cannot be efficient if the ...
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Difference between pigovian tax and sin tax?

A pigouvian tax is on goods or services that are known to have negative externalities, and for which some estimation of the economic value of those negative externalities can be made, and is there to ...
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2 votes

Pigouvian tax equivalent to Coasian payments

In the given scenario, the optimal social outcome from a Coasian bargain is not in general the same as the optimal social outcome from a Pigouvian tax, although there is a special case in which this ...
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1 vote

What can be done when pigouvian taxes must be so high that black markets become viable?

One simple solution is just more investment in enforcement. It’s not like people can engage in black market freely the same way as in official sector. In the example with forest government could ...
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Do carbon taxes in place today apply to carbon embedded in imports?

I think the answer is generally/overwhelmingly "no" there usually not a embedded carbon (import) tax in most jurisdictions. A 2019 paper says: The idea of a BCA is not new. In the US, for example, ...
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Are there two deadweight welfare losses associated with a Pigovian tax?

The Pigovian tax is responsible for neither of the deadweight losses in your diagram. The Pigovian tax has partially, but not wholly, corrected a deadweight loss that was caused by the negative ...
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