Pigouvian Tax
Definition
A tax equal to the marginal external cost of an activity — internalizes negative externalities, pushing output to the efficient level.
Example
A carbon tax set at the social cost of CO₂ is the textbook Pigouvian tax.
A tax equal to the marginal external cost of an activity — internalizes negative externalities, pushing output to the efficient level.
A carbon tax set at the social cost of CO₂ is the textbook Pigouvian tax.