Pigovian Taxes

A Pigovian tax (also spelled Pigouvian tax) is a tax levied to correct the negative externalities of a market activity. For instance, a Pigovian tax may be levied on producers who pollute the environment to encourage them to reduce pollution, and to provide revenue which may be used to counteract the negative effects of the pollution. Certain types of Pigovian taxes are sometimes referred to as sin taxes, for example taxes on alcohol and cigarettes.

Pigovian taxes are named after economist Arthur Pigou (1877-1959) who also developed the concept of economic externalities.

from the Wikipedia [http://en.wikipedia.org/wiki/Pigovian_tax]

In 2005, carbon emissions from the burning of fossil fuels climbed to a record high of 7.9 billion tons, an increase of some 3 percent from the previous year. Annual global emissions have been increasing since the beginning of the Industrial Revolution in the late eighteenth century, when humans first began burning fossil fuels on a large scale to produce energy. Since the early 1900s, emissions have been rising at an increasingly rapid pace. Annual emissions have grown by a factor of fifteen since 1900, advancing nearly 3 percent a year over that time.

Joseph A. Florence, Earth Policy Insitute[http://www.earth-policy.org/Indicators/CO2/2006.htm]

Recent news on Global Warming is dire, with a new U.N. report arguing that we can expect sea levels to rise for the next 100 years, with devastating results. Much of this was discussed in Al Gore’s “An Inconvenient Truth,” of course, but it’s good to see that the issue is attacking some attention in the profit-media. The question then becomes, of course, what to do about it. One idea gaining ground involves a Pigovian Tax on carbon; the more you put into the atmosphere, the more you pay. Last November, MS-NBC reported on Boulder Colorado’s carbon tax program.

That’s the problem, of course; these taxes are sharply regressive, and so they are likely to appear first in relatively affluent communities who can afford it. Nothing wrong with that, of course, but it is not something you would want to see more widely applied, unless you also made efforts elsewhere to counter the relatively more powerful impact on the poor. An negative income tax is one good example. We would create a floor, as the metaphor goes, beyond which no one could fall. About.com has a good discussion of many of these issues here.

Perhaps the most famous and articulate advocates of Pigovian Taxes, particularly on carbon, is Greg Mankiw, an economics professor at Harvard. Dr. Mankiw has argued, in particular that a higher tax on gasoline would “encourage people to drive less by, for instance, living closer to where they work. ” Even better, of course, would be to take the money and re-create the nation’s mass transit system. I am still trying to figure out if Dr. Mankiw would support that idea. James Howard Kunstler isn’t as shy about what he wants. Writing about Bush’s recent plans, Kunstler say that “real leadership would … propose making other arrangements, like getting the trains running again or ending incentives for suburban sprawl.” Mankiw and Kunstler should have lunch.

About Ray Watkins

I was born in Baton Rouge, Louisiana, at Our Lady of the Lake Hospital. I grew up in Houston, as a part of what we only half-jokingly call the Cajun Diaspora. At a certain point during the Regan administration, I had to leave, so I served in the Peace Corps, Philippines, from 1987-89. I didn't want to return to the United States just yet, so I moved to Paris, France, where I lived for three years or so. I then moved back to Austin, Texas, where I had received my Masters Degree, and (eventually) began a Ph.D., which I completed in 1999. I spent a year at Temple University and then accepted a position at Eastern Illinois University where I worked until May of 2006. I now work exclusively on line (although that may change) for Johns Hopkins, the Art Institute Online, and Smarthinking.com. I can be reached most easily via email: raywatkins [that 'at' symbol] writinginthewild.com

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