Working of The Pigovian Tax
The diagram illustrates the working of a Pigovian tax. A tax shifts the marginal private cost curve up by the amount of the tax. If the tax is placed on the quantity of emissions from the factory, the producers have an incentive to reduce output to the socially optimum level. If the tax is placed on the percentage of emissions per unit of production, the factory has the incentive to change to cleaner processes or technology.
Read more about this topic: Pigovian Tax
Famous quotes containing the words working and/or tax:
“The worst fault of the working classes is telling their children they’re not going to succeed, saying: “There is life, but it’s not for you.””
—John Mortimer (b. 1923)
“In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”
—Alexis de Tocqueville (1805–1859)