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Pigouvian Tax

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PPGPortal > Home > Concept Dictionary > P, Q > Pigouvian Tax

Pigouvian Tax 

A tax that serves as a method of internalizing externalities.

(Dwayne Benjamin, Toronto PPG 1002H)


For example, a tax on a polluter that is equal to the environmental damage that polluter causes forces polluters to pay the entire “social cost” of their production. If the Pigouvian tax is well designed, such a policy can lead to a Pareto efficient level of both production and pollution.


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