Economics Externalities Questions
The Pigouvian tax is a type of tax imposed on goods or activities that generate negative externalities, such as pollution or congestion. It is named after economist Arthur Pigou, who advocated for the use of taxes to internalize external costs. The purpose of the Pigouvian tax is to make the price of the good or activity reflect its true social cost, thereby incentivizing producers and consumers to reduce their negative externalities. The revenue generated from the tax can be used to mitigate the external costs or compensate those affected by the negative externalities.