Pigovian tax

A Pigovian tax is a type of tax that takes into account negative effects of things produced.

This concepts tries to reconcile both the interests of the producer and the social interests of the consumer.

For example, a producer of plastic bottles only cares about their profits, not on the negative effect that the bottles in the trash may have on nature. Other example may be unintended consequences from buildings, or the increase of a need for police in areas where there is more consumption of alcohol.

The concept was studied by economist Arthur Cecil Pigou in his book The Economics of Welfare.

Pigovian Tax Media

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  Pigouvian tax effect on output