Q. Consider the following statements regarding “Pigovian Tax”:
1. It is a tax placed on any good which creates negative externalities.
2. Carbon tax is an example of Pigovian Tax.
Which of the following codes below given is/are correct?
A Pigovian tax is a tax placed on any good which creates negative externalities.
- The aim of a Pigovian tax is to make the price of the good equal to the social marginal cost and create a more socially efficient allocation of resources.
- It is named after the economist Arthur Pigou who developed the concept of externalities in the 1920s.
- A carbon tax aims to make individuals and firms pay the full social cost of carbon pollution.
- In theory, the tax will reduce pollution and encourage more environmentally friendly alternatives.