Which of the following is an example of a Pigovian tax?
A)Payments by utilities to obtain tradable emissions allowances
B)A payroll tax
C)Payments for licenses to pollute
D)A tax imposed on a utility that internalises the cost of externalities caused by the utility

Question

Quizplus · Accepted Answer

A Pigovian tax is a tax imposed on a firm that internalises the costs of their negative externalities. This type of tax is meant to make the firm pay for the damages they cause to society and incentivise them to decrease those damages. Option D is the only one that fits this definition, as it mentions a tax imposed on a utility that internalises the cost of externalities caused by it. Options A, B, and C do not fit this definition, as they do not target negative externalities specifically.

Which of the Following Is an Example of a Pigovian