Saturday, October 14, 2017

Pigouvian Taxes


                                                 Comments due by Oct 21, 2017

LOUD conversation in a train carriage that makes concentration impossible for fellow-passengers. A farmer spraying weedkiller that destroys his neighbour’s crop. Motorists whose idling cars spew fumes into the air, polluting the atmosphere for everyone. Such behaviour might be considered thoughtless, anti-social or even immoral. For economists these spillovers are a problem to be solved. Markets are supposed to organise activity in a way that leaves everyone better off. But the interests of those directly involved, and of wider society, do not always coincide. Left to their own devices, boors may ignore travellers’ desire for peace and quiet; farmers the impact of weedkiller on the crops of others; motorists the effect of their emissions. In all of these cases, the active parties are doing well, but bystanders are not. Market prices—of rail tickets, weedkiller or petrol—do not take these wider costs, or “externalities”, into account. The examples so far are the negative sort of externality. Others are positive. Melodious music could improve everyone’s commute, for example; a new road may benefit communities by more than a private investor would take into account. Still others are more properly known as “internalities”. These are the overlooked costs people inflict on their future selves, such as when they smoke, or scoff so many sugary snacks that their health suffers. The first to lay out the idea of externalities was Alfred Marshall, a British economist. But it was one of his students at Cambridge University who became famous for his work on the problem. Born in 1877 on the Isle of Wight, Arthur Pigou cut a scruffy figure on campus. He was uncomfortable with strangers, but intellectually brilliant. Marshall championed him and with the older man’s support, Pigou succeeded him to become head of the economics faculty when he was just 30 years old. In 1920 Pigou published “The Economics of Welfare”, a dense book that outlined his vision of economics as a toolkit for improving the lives of the poor. Externalities, where “self-interest will not…tend to make the national dividend a maximum”, were central to his theme. Although Pigou sprinkled his analysis with examples that would have appealed to posh students, such as his concern for those whose land might be overrun by rabbits from a neighbouring field, others reflected graver problems. He claimed that chimney smoke in London meant that there was only 12% as much sunlight as was astronomically possible. Such pollution imposed huge “uncharged” costs on communities, in the form of dirty clothes and vegetables, and the need for expensive artificial light. If markets worked properly, people would invest more in smoke-prevention devices, he thought. Pigou was open to different ways of tackling externalities. Some things should be regulated—he scoffed at the idea that the invisible hand could guide property speculators towards creating a well-planned town. Other activities ought simply to be banned. No amount of “deceptive activity”—adulterating food, for example— could generate economic benefits, he reckoned. But he saw the most obvious forms of intervention as “bounties and taxes”. These measures would use prices to restore market perfection and avoid strangling people with red tape. Seeing that producers and sellers of “intoxicants” did not have to pay for the prisons and policemen associated with the rowdiness they caused, for example, he recommended a tax on booze. Pricier kegs should deter some drinkers; the others will pay towards the social costs they inflict. This type of intervention is now known as a Pigouvian tax. The idea is not just ubiquitous in economics courses; it is also a favourite of policymakers. The world is littered with apparently externality-busting taxes. The French government imposes a noise tax on aircraft at its nine busiest airports. Levies on drivers to counterbalance the externalities of congestion and pollution are common in the Western world. Taxes to fix internalities, like those on tobacco, are pervasive, too. Britain will join other governments in imposing a levy on unhealthy sugary drinks starting next year. Pigouvian taxes are also a big part of the policy debate over global warming. Finland and Denmark have had a carbon tax since the early 1990s; British Columbia, a Canadian province, since 2008; and Chile and Mexico since 2014. By using prices as signals, a tax should encourage people and companies to lower their carbon emissions more efficiently than a regulator could by diktat. If everyone faces the same tax, those who find it easiest to lower their emissions ought to lower them the most. Such measures do change behaviour. A tax on plastic bags in Ireland, for example, cut their use by over 90% (with some unfortunate side-effects of its own, as thefts of baskets and trolleys rose). Three years after a charge was introduced on driving in central London, congestion inside the zone had fallen by a quarter. British Columbia’s carbon tax reduced fuel consumption and greenhouse-gas emissions by an estimated 5-15%. And experience with tobacco taxes suggests that they discourage smoking, as long as they are high and smuggled substitutes are hard to find. Champions of Pigouvian taxes say that they generate a “double dividend”. As well as creating social benefits by pricing in harm, they raise revenues that can be used to lower taxes elsewhere. The Finnish carbon tax was part of a move away from taxes on labour, for example; if taxes must discourage something, better that it be pollution than work. In Denmark the tax partly funds pension contributions. Pigou flies Even as policymakers have embraced Pigou’s idea, however, its flaws, both theoretical and practical, have been scrutinised. Economists have picked holes in the theory. One major objection is the incompleteness of the framework, since it holds everything else in the economy fixed. The impact of a Pigouvian tax will depend on the level of competition in the market it is affecting, for example. If a monopoly is already using its power to reduce supply of its products, a new tax may not do any extra good. And if a dominant drinks firm absorbs the cost of an alcohol tax rather than passes it on, then it may not influence the rowdy. (A similar criticism applies to the idea of the double dividend: taxes on labour could cause people to work less than they otherwise might, but if an environmental tax raises the cost of things people spend their income on it might also have the effect of deterring work.) Another assault on Pigou’s idea came from Ronald Coase, an economist at the University of Chicago (whose theory of the firm was the subject of the first brief in this series). Coase considered externalities as a problem of ill-defined property rights. If it were feasible to assign such rights properly, people could be left to bargain their way to a good solution without the need for a heavy-handed tax. Coase used the example of a confectioner, disturbing a quiet doctor working next door with his noisy machinery. Solving the conflict with a tax would make less sense than the two neighbours bargaining their way to a solution. The law could assign the right to be noisy to the sweet-maker, and if worthwhile, the doctor could pay him to be quiet. In most cases, the sheer hassle of haggling would render this unrealistic, a problem that Coase was the first to admit. But his deeper point stands. Before charging in with a corrective tax, first think about which institutions and laws currently in place could fix things. Coase pointed out that laws against nuisance could help fix the problem of rabbits ravaging the land; quiet carriages today assign passengers to places according to their noise preferences. Others reject Pigou’s approach on moral grounds. Michael Sandel, a political philosopher at Harvard University, has worried that relying on prices and markets to fix the world’s problems can end up legitimising bad behaviour. When in 1998 one school in Haifa tried to encourage parents to pick their children up on time by fining them, tardy pickups increased. It turned out that parental guilt was a more effective deterrent than cash; making payments seems to have assuaged the guilt. Besides these more theoretical qualms about Pigouvian taxes, policymakers encounter all manner of practical ones. Pigou himself admitted that his prescriptions were vague; in “The Economics of Welfare”, though he believed taxes on damaging industries could benefit society, he did not say which ones. Nor did he spell out in much detail how to set the level of the tax. Prices in the real world are no help; their failure to incorporate social costs is the problem that needs to be solved. Getting people to reveal the precise cost to them of something like clogged roads is asking a lot. In areas like these, policymakers have had to settle on a mixture of pragmatism and public acceptability. London’s initial £5 ($8) fee for driving into its city centre was suspiciously round for a sum meant to reflect the social cost of a trip. Inevitably, a desire to raise revenue also plays a role. It would be nice to believe that politicians set Pigouvian taxes merely in order to price in an externality, but the evidence, and common sense, suggests otherwise. Research may have guided the initial level of a British landfill tax, at £7 a tonne in 1996. But other considerations may have boosted it to £40 a tonne in 2009, and thence to £80 a tonne in 2014. Things become even harder when it comes to divining the social cost of carbon emissions. Economists have diligently poked gigantic models of the global economy to calculate the relationship between temperature and GDP. But such exercises inevitably rely on heroic assumptions. And putting a dollar number on environmental Armageddon is an ethical question, as well as a technical one, relying as it does on such judgments as how to value unborn generations. The span of estimates of the economic loss to humanity from carbon emissions is unhelpfully wide as a result, ranging from around $30 to $400 a tonne. It’s the politics, stupid The question of where Pigouvian taxes fall is also tricky. A common gripe is that they are regressive, punishing poorer people, who, for example, smoke more and are less able to cope with rises in heating costs. An economist might shrug: the whole point is to raise the price for whoever is generating the externality. A politician cannot afford to be so hard-hearted. When Australia introduced a version of a carbon tax in 2012, more than half of the money ended up being given back to pensioners and poorer households to help with energy costs. The tax still sharpened incentives, the handouts softened the pain. A tax is also hard to direct very precisely at the worst offenders. Binge-drinking accounts for 77% of the costs of excessive alcohol use, as measured by lost workplace productivity and extra health-care costs, for example, but less than a fifth of Americans report drinking to excess in any one month. Economists might like to charge someone’s 12th pint of beer at a higher rate than their first, but implementing that would be a nightmare. Globalisation piles on complications. A domestic carbon tax could encourage people to switch towards imports, or hurt the competitiveness of companies’ exports, possibly even encouraging them to relocate. One solution would be to apply a tax on the carbon content of imports and refund the tax to companies on their exports, as the European Union is doing for cement. But this would be fiendishly complicated to implement across the economy. A global harmonised tax on carbon is the stuff of economists’ dreams, and set to remain so. So, Pigou handed economists a problem and a solution, elegant in theory but tricky in practice. Politics and policymaking are both harder than the blackboard scribblings of theoreticians. He was sure, however, that the effort was worthwhile. Economics, he said, was an instrument “for the bettering of human life”. (Economist)

16 comments:

LTBL said...

DeShawn McLeod

The solutions to environmental problems seem to not consider the long-term effects on low-income households. While taxes and property rights could potentially remedy the issue of pollution or negative externalities, these ideas seem to ultimately crush those in the middle and lower classes. Because wages do not increase at the same rate that cost of goods and services do, the recommended paths to recovery will have its own negative externalities.

If economists consider the maximization of consumer and producer surplus, what income brackets are they using in these models? It looks like economists who have not dealt with poverty personally can easily apply a set income for consumers and recommend and plan with an absence of a solution for the poor or those with widespread debt, as it has become normal to have debt. If prices were to rise or publicly accessed goods were privatized, bigger companies (and wealthier households) can take the hit of rising prices and costs of maintenance. Is that fair?

If the ISEW or GPI are important indexes in environmental economics, economic welfare should be a priority in any solution to curb damaging environmental impacts and not crush low-income households and further expand income inequality. If an economists perspective comes from their own background (upper middle class) of course s/he can think their solution will work. But, if you’ve dealt with hardship, resource deprivation, or clearly see the uneven playing field of money distribution, then come to the table with an idea that just doesn’t cripple lower income brackets.

Unknown said...

Olivia Gonzalez
This article is a very interesting sequel to the article from last week. That article discussed a solution for the degradation environment through more concrete economic terms such as cost-benefit analysis. This expands upon that theme by evaluating what the true costs and benefits to imposing taxes on actions and items that cause harm to the environment or bother society. Some parts that I found most interesting included the description of the daycare which imposed a late charge to encourage parents to pick up their children earlier, and instead found that the charge caused more children to be picked up later. Parents would rather feel like they were just paying for extra daycare hours than feel the guilt. In other, more economic circumstances, I believe this works. For example, in certain grocery stores, the store imposes a charge on plastic bags, and a reward for using reusable shopping bags. The article states that in some cases this has caused an increase in theft of grocery carts and baskets, but I believe that this is a positive use of Pigouvian taxes. It imposes guilt upon the grocery shoppers by charging them per bag, therefore showing them a numerical presentation of how much plastic they are wasting by not using larger, more economic and environmentally friendly bags that could save them cents off of their shopping haul. In every situation, there will be people that will take advantage of a system that is put into place to do good, whether through hoarding hurricane prep products as we discussed a few weeks ago, or through stealing a basket to avoid a plastic bag charge. That does not mean that these efforts should not be made nonetheless.

Unknown said...

Rebecca McMann

Adding taxes onto things to give a push into people using less of the product sounds like a perfect idea on paper. Environmental problems need long term effects and adding more money onto goods could work at first and force a change in behavior but it could also cause other problems. Wages will most likely no increase with the taxes and the people who can not afford to do certain things will pay the price for this issue. t will increase the need to work and could lead then to more pollution due to the increase in need for transportation to get to work. Even if people were forced to carpool the addition of a tax on even transportation as an only driver would balance out in the amount of trips needed for that person to get to work enough to have the money to even afford it all in the first place. I found it quite interesting that even when fees were placed on late parents the tardy pick ups only increased. Because parents were paying for their lateness they felt less guilty and that they were making up for the lateness. I have actually found this to be true at my own job. We do not charge a late fee until a certain amount after so parents take advantage of the grace period and if they go over they aren't worried unless money is actually an issue for them and they can not afford the program in the first place. I think that adding this kind of tac is an interesting idea and may put a dent in pollution and help force some change but i do not know if it is the ultimate solution. Environmental problems need a long lasting solution and so it makes every decision complicated due to so many factors and so many different possible outcomes and changes.

Alena Serebryakova said...

Seeing as there are many factors and outcomes that play into and could come out of decisions related to solving environmental issues, it is vital that the solutions that get chosen have long lasting effects, as short term ones could prove to be more detrimental. That being said, while short term implementations might look beneficial, when taking the environment into consideration, the bigger picture must always be considered and prioritized.
There was part of the article that stated “Pigou handed economists a problem and a solution, elegant in theory but tricky in practice.” I feel that this statement is the backbone to many situations, one being for example the fact that binge-drinking accounts for 77% of the costs of alcohol use deemed excessive, when placed in the bigger picture of workplace productivity that gets lost and additional health-care costs that get accrued. Statistics that are applicable and could in theory be acted open would just become more of an issue on a globalised scale, even if that is the place they would provide the most benefits.
Personally, I have worked as a waitress in restaurants and as a bartender in bars and agreeably, while it might make sense to apply taxes onto the next additional unit of product that is demanded by the consumer, the bigger picture outlook of actually implementing this so that these taxes would provide use is just folly. Ideal gains and outcomes and realistic outputs are unfortunately, almost never the same.

YANG Peidong said...

YANG peidong
This article mainly introduces the Pigouvian tax, including its meaning and problems in real practices. The rapid development of economy brings large amount of wealth to people, as well as some detrimental byproducts, pollution. The burning of coal for light and heat cause air pollution, the chemical productions cause water pollution, and the operation of huge machines causes noise pollution. These various kinds of pollution brings side effects to the public and demand a lot of money to deal with. So actually, we are paying for our unregulated development by the money we made through the economic progress, just like a vicious circle. Then, professor Pigou suggests that taxes should be put on these externalities. Policy makers quite satisfy with this idea and put taxes on people who may produce these pollutions. For example, the tobacco companies should pay taxes on their detrimental effects on health, airports should pay for their noises by airplanes. Such method is effective to regulate the companies and individuals’ behaviors and make them shoulder the social responsibility. Taxes that government received will be returned to the society to support the social development. This theory sounds perfect. But theory is perfect in words but flawed in real practice. Firstly, it is hard to evaluate what certain proportion of tax should be exercised because the environmental issue is impossible to set a price. For example, air pollution will cause health problems, but price of health is impossible to value. Exploration will damage local species, but the existence of plant or animal is impossible to set a value. What’s more, many other external factors will also interrupt the Pigouvian Tax, such as the globalization. More taxes on domestic companies will prompt them to increase their prices, and the increased domestic prices will push people to buy import productions, influencing the domestic economic development negatively.

Unknown said...

Alison Zhabotinskiy

This was an interesting article, following last week’s analysis of cost benefit analysis. It is interesting to see the breakdown of Pigouvian taxes and exactly how imposed taxes can positively and negatively benefit or effect behavior and the economy. As Pigou suggests, imposing taxes, which would deal with the externalities within our society, could better not only the better life for the poor but better the economy and society. Though his intentions of imposing taxes would serve to better the economy, all positive things have negative effects, unfortunately. From the given examples within the article, there are many factors that need to be considered. Two factors that should be put into consideration are time and value. Theory can either be good or bad on paper, but whether a theory can stand the test of time, can only prove if there is actual change or not. For instance, in the given example of the tax imposed onto plastic bags in Ireland. Though the use of plastic bags was cut by 90%, there was an increase of theft of baskets and trolleys. But the benefit is much greater than the negative. Ireland’s population had a behavioral change, which obviously brought attention to decreasing the use of plastic bags. If for example a tax was not placed on the bags, just telling people to not use them would not cause as a dramatic cut in use. But putting a monetary value into the mix, people were obviously aware that they should stop using plastic bags because first, they’re expensive, and second, they are a waste. This incentivizes people to save their money, as well as promotes the decreased use of plastic bags, and possibly other plastic goods. The second factor, value, is always a concern because how exactly can there be a set value on resources. The applied theory cannot remain steady if the amount of resources is constantly changing. Changing amounts of resources would only cause taxes to constantly change, only making the economy fluctuate even more and possibly become unsteady, making quality of life even worse.

Anonymous said...

Paola Idrovo

Pigouvian taxes are a fascinating topic. As a consumer, the idea of increasing taxes is immediately uninviting, but reading about the economic motives behind taxes makes them seem like a more viable solution to our externality problems. However, pigouvian taxes still seem to be inadequate solutions to environmental problems. The example of taxes on cigarettes is especially interesting because the tax has been passed on to the consumer, successfully deterring some cigarette use. However, cigarettes are not a life necessity, so passing the tax onto the consumer has the simple effect of reducing the use of a deadly substance. Furthermore, cigarette smokers are only a subset of the population. Taxes on carbon or emissions would be much more difficult to design and successfully implement because every individual’s life is connected in some way to fossil fuel use. A carbon tax if passed on to the consumer would place disproportionate burdens on lower class citizens. A viable option for reducing negative externalities without implementing taxes, is by creating viable alternatives to the polluting or harmful activity. For example, a supermarket I frequent does not provide any form of disposable bag, neither paper nor plastic. Instead the supermarket sells hardy reusable bags or allows customers to use the large cardboard boxes the merchandise is shipped in. This solution to the disposable bag problem is relatively simple, and does not impose a significant cost on either the consumer or producer. Solutions like these require cultural shifts and changing social norms, so their implementation will take much longer and be more gradual. Also, these alternatives are not currently available for all economic activities that create negative environmental externalities, but they are an alternative to pigouvian taxes.

Unknown said...

Jordi Isidor.

The fact that applying a tax on markets that generates negatives externalities is a great and interesting topic. However, consumers are no always able to accept this new tax and in most cases depending on the elasticity of the market, the tax is supposed to be paid mostly by consumers. Although this tax may be great things for the economy as a whole it doesn't seem as the best solution for the environment because it is not the same to apply a tax on tobacco companies where the increase in price result in a decrease on demand making people quitting smoke, if we apply this tax on a market where a bigger percentage of the economy is depending on, what we may see is a increase in inequality rather than a decrease in the total demand of the population. Like the solution on the disposable bas issue it can be simple and doesn't require an additional cost to either the consumer or produces because it implies a change in the behavior of the society.

Unknown said...

Brian DelVecchio

If it were possible to include every externality that is created throughout the economy, then it could be arguable that it would be the perfect system for the economy. The idea of externalities from Alfred Marshall and and Arthur Pigou was well ahead of its time to understand that to understand that side effects created from things can lead to some of the most detrimental and be the cause of many problems. On the other hand, having a proper system that included externalities would promote healthier actions and layout a natural road of being able to prevent many issues in the first place. Pigou's claim on 12% of the potential sunlight in the city being utilized because of how much smoke was being pumped in the city of London at the time. He introduced the thought of Pigouvian taxes which seem to certainly have a place to be useful, with some flaws included as well. The Pigouvian tax can be potenially quite useful in the correct situations, such as the Finnish carbon tax to move away from labour tax. Cons to the idea include Ronald Coase's thoughts that this does not function well enough when there are not enough property rights. Another major criticism is how it can be a regressive tax, such as the case of a smoking tax for the poorer people who smoke more often. As well is that it is not so simple as fixing a certain circumstance without creating added consequences. Taxing a company might deter their activities but it could also deter them from wanting to compete in this specific market and could lead to businesses moving internationally. Even with all of these considered, Pigouvian taxes have their place and at times can be a great way to dictate behavior and include much needed policies on externalities.

Unknown said...

Daniella Antolino

I was very excited to read this article, this was a very interesting topic especially relating to last week’s analysis topic and videos on cost benefit analysis. Pigouvian tax and the breakdown of this is very interesting. Pigouvian is a tax levied on any market activity that generates negative externalities. The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities. the breakdown of this is to make it easier to understand is according to Pigou, negative externalities prevent a market economy from reaching equilibrium when producers do not internalize all costs of production. This negative externality might be corrected, he contended, by levying taxes equal to the externalized costs. A great example is tax on pollution. Pollution from a factory creates a negative externality because part of the cost of pollution is borne by third parties nearby. This can cause health risks/problems and ruin areas nearby the factory. Another example would be in the article about tobacco if they increase the price it causes a decrease in demand.. They are using this concept to help environmental problems. Putting tax on cigarettes becomes better for the environment if less people are willing to consume this product because of the increase in cost. it lowers the amount of cigarette users. This definitely has both pros and cons to the usage of this concerning the environment and society as a whole.

Andresious Cyprianos said...

Andresious Cyprianos

Pigouvan Tax, although under a-lot of scrutiny I feel is the right way to deal with most of the externalities. The biggest problem however that will always arise is implementation. The fact that taxes on goods such as alcohol and cigarettes will almost always be passed down onto consumers, government would/have to take on approaches that can avoid increases in the final selling price and instead affect the overall actual production. Reading this article i thought, why don't policies inflict a price ceiling on goods with taxes that can be passed onto consumers. Firms would be forced to either reduce their supply, or come up with more productive ways in-order to continue to maximize profits. The complexities to actually detecting positive and negative externailites is why in the end most of them would be subject to immense political pressure. This is exactly why decisions will and will continue to be made based on the needs of present wants and the future generations would be ignored.

Unknown said...

This was a very interesting article because I remember when many Pigouvian taxes were implemented in Philadelphia, where I grew up. Taxes on liquor, soda, and tabacco were all implemented by the City of Philadelphia, also. Despite this increase in cost, I was never sure of their effectiveness in deterring smokers and drinkers from purchasing these products. Usually when somebody smokes tabacco or drinks in excess, there is most times an addiction to the use of these products. I know this from the personal experience of having two parents that smoke cigarettes. Whenever somebody is addicted to the consumption of a product, there is little chance that a rise in prices will affect their perceived "needs" to consume it. Thus, these products would continue to consumed at the usual rate. However, in knowing that tabacco and alcohol have become so expensive, perhaps these taxes would deter non-smokers to begin smoking or non-alcoholics to drink more often. In this way, I can see how the Pigouvian taxes may have a positive impact on the negative externalities caused by smoking and drinking. When it comes to soda — a less addictive product — it is my opinion that a tax would be quite effective in deterring consumers from purchasing it as often. All of these products are bad for one's health, but there has to be some degree of benefits that consumers derive through their use of them. It is up to each individual consumer to recognize the public information available to them concerning healthy lifestyles, and even when known, some consumers may not place sufficient importance on leading a healthy lifestyle, continuing to consume these products despite the blatant warnings. Besides, as the article states, there is no net effect of the Pigouvian tax if dominant, powerful firms in these industries absorb the added tax instead of passing it on to the consumer.

Just as the farmer ruining his neighbors crops with weed killer, it takes conscientious members of society to actively participate in eliminating these externalities. If improving the general welfare of others is not one's interest, there is unlikely to be much change. Cost-benefit analysis is central to an economic mindset. However, we must not fall into the trap of believing that the average consumer conducts their daily lives while keeping "the bettering of human life" in mind.

Unknown said...

Yunjia Guo

I enjoy reading this week's post about how economists evaluate the negative externality and reducing it by imposing taxes on the goods to decrease the use of the product. I remember when I was young, fee of plastic bags for shopping was added in China. I did not know the effect mentioned by the post at that time and wondered how cents of payments will solve the pollution. However, the use of plastic bags did decrease in a huge amount, and people starts to use canvas bags all the time. Moreover, I do see there are still problem of the "global harmonised tax" of externalities. It is understandable because the huge inequality of the whole world. On the other hand, I have a question about the Pigouvian taxes system. Even in the same country or a single state, there is huge inequality exists. How can economists be sure that they charge enough to eliminate the overuse of the product, but also make sure the taxes will not bring problem to the household of lower classes or in poverty? I know they consume less of some of the products but even a little more payment for them seems huge.

Unknown said...

The article talks about Pigouvian taxes and how it will be useful or not useful for people to use it. In theory it is a great way to impose tax on people for protecting the environment and reducing the amount of energy that people spent. However, in reality it is hard to impose because even though it has positive sides, it brings some negative sides as well. For example, imposing this type of taxes on people will make life difficult for poor people who work for minimum wage. Even though their life style haven't changed they will be paying taxes which will affect their income. However, it has some good affects as well such as reducing air pollution given the example of UK where you pay extra tax in some part of areas in London for gas emission. This have actually worked perfectly. It has reduced to air pollution. However, there is a lot of things to be considered when imposing this type of tax that is why in paper it is a perfect solution to protect the environment but still it needs to be fully understand and impose equally on everybody in reality.

Jaquille Ward said...

Jaquille Ward

I found this article to be very interesting. I feel the Pigouvian Tax is a good way to limit externalities. Many people would or should cut down on their use of certain goods and services if these taxes were to take effect. This would be very beneficial to the environment, as well as to people themselves. These taxes would be great for smokers because it would lower their use of the good, which can lower their chances of having health problems, such as cancer. The second-hand smokers would benefit from this as well because they would be inhaling less smoke, causing less health issues. This act will have a huge positive impact on the environment. The only ones who would not benefit from this are the producers/suppliers because they could possibly lose some profits because the prices of the good will increase, but the demand for the good will decrease. The Pigouvian Tax comes with positive and negative impacts, but in the end, the positives outweigh the negative, especially if the health of the environment and people are the main concern.

Unknown said...

Celena Danahy

Taxes. We all hate when we get back our paycheck and see what seems like a large portion of our earnings go towards taxes. We know they exist and we pay them, well at least most of us do, but we do not always understand what exactly our money is being put towards. This article gave me a new perspective on what taxes mean and the reason for their existence. In New York City, for example, if a person buys a drink in a plastic bottle they are charged a tax on the bottle. If this person were to go and recycle the plastic bottle when finished, they would receive this money back. I immediately thought of this while reading this article. The reason New York City imposes this tax is to encourage people to recycle. By placing a tax on the bottle, it makes people want to recycle in order to get their money back. If people do not recycle the product, then New York City can take the tax money and put it towards environmental efforts. I agree with this way of governing. When it comes to the Pigouvian Tax, the benefits outweigh the costs. What I also enjoyed about this article is the mention of Michael Sandel. Sidenote, my favorite book is Justice: What is the right thing to do? by Michael J. Sandel. Reading the article, I was thinking to myself, Michael Sandel would not necessarily agree with all of this. Would imposing a tax on cigarettes really stop people from smoking? Who should be the one to have to pay this tax? The people or the company? If you tax the company are they going to just pass on the cost to the consumer? I think either way, you are doing good. If you tax the cigarette smokers, then the demand will decrease and so will sales. When sales go down, the company produces less. If you the company, then they may price the good higher, which would result in less people buying cigarettes. Either way, sales of cigarettes go down. The ultimate goal is reached.