Pigovian Tax

A special tax that is often levied on companies that pollute the environment or create excess social costs, called negative externalities, through business practices. In a true market economy, a Pigovian tax is the most efficient and effective way to correct negative externalities.

A type of a Pigovian tax is a "sin tax", which is a special tax on tobacco products and alcohol.

Pigovian tax is applicable only because market economies often fail to provide a proper incentive to reduce negative externalities. For example, a coal-powered plant may be polluting a nearby river by disposing its harmful byproducts in the river instead of shipping the byproducts to a special facility. A sufficient Pigovian tax would punish this firm economically when it chooses to dispose of the harmful byproducts in the river, creating an incentive to use more environmentally friendly methods of disposal.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Pigovian tax — A Pigovian tax (also spelled Pigouvian tax) is a tax levied to correct the negative externalities of a market activity. Pigovian taxes are named after economist Arthur Pigou (1877 1959), who also developed the concept of economic externalities.… …   Wikipedia

  • Tax shift — or Tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. [cite web url = http://sustainableprosperity.ca/about/faqs/#eight title = Will… …   Wikipedia

  • Tax — Taxation An aspect of fiscal policy …   Wikipedia

  • Tax treaty — Taxation An aspect of fiscal policy …   Wikipedia

  • Tax rate — For a type of taxation system in the United Kingdom and elsewhere, see Rates (tax). Taxation An aspect of fiscal policy …   Wikipedia

  • Tax noncompliance — Taxation An aspect of fiscal policy …   Wikipedia

  • Tax deduction — This article is about the deduction of expenses for the purpose of calculating taxable income. For tax deducted at source, see Withholding tax. Taxation An aspect of fiscal policy …   Wikipedia

  • Tax rates around the world — Taxation An aspect of fiscal policy …   Wikipedia

  • Carbon tax — Part of a series on Green economics Concepts …   Wikipedia

  • Consumption tax — Taxation An aspect of fiscal policy …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.