Pigou tax is a generic term for steering element deliveries, thus for taxes, which have less a Fiskalzweck, than rather mainly serve the purposeful steering of the behavior. They are designated after Arthur Cecil Pigou.

Contrary to subsidies it concerns with Pigou taxes loading steering element purpose standards. They can serve to correct by the Internalisierung of external effects a market failure. Since the market equilibrium is not pareto optimal in these cases, an Pareto improvement can be achieved by the employment by Pigou taxes.

A fiscal purpose cannot be pursued with the Pigou tax theoretically, since by the collection of the tax the damaging activity is to be reduced. Thus also the tax receipt sinks.

Starting situation

A classical example is an economics from two producers at a river, a factory and far downstream managing Fischer. The factory leads it in the context of production developing waste water into the river, which reduces the profits of Fischer. Without adjustment the factory in its decision becomes, how much it is to produce, which effects of its decision do not consider on Fischer (external effects). This is overallally economic inefficient, therefore the factory must reduce their contamination.

There are several possibilities of inducing the factory to a smaller production:

• A limit given by the state would lower the production of the factory. This measure cannot be applied however to a whole economy. Since each enterprise causes other external costs, the state would have to specify individual limit values - the expenditure would be too large.
• The trade with emission certificates limits likewise the production of the factory.
• After the sample of the Coase theorem if the property at the river is awarded to one of the two parties, then it comes also to a concerted solution. Who the property holds is all the same thereby.
• The state raises a Pigou tax.

Theoretical bases

The state specifies a tax t per emission unit. The factory has to avoid now the possibility either a unit of the emission or emit it and to pay but the tax t. The factory will so far produce to the border advantage of an emission unit of the tax for these corresponds.

Change of the assessment basis

Since the Pigou tax does not pursue a fiscal purpose, fiscal charges is to be regarded as small as the enterprises as possible. This can be accomplished e.g. by a variation of the assessment basis. The only condition consists of the fact that the tax at the border works.

Sample applications

Taxes, which serve rather the steering of the population as the public revenues, are e.g. the Alkopop tax or the tax on tobacco.

Frequently the German eco-tax is called as an example of the Pigou tax. Due to the arrangement of the eco-tax this is reduced however only the case. Enterprises, which use very much energy, pay only a reduced sentence. Since for these enterprises the incentive sinks for energy conservation, the principle of the Pigou tax was not completely implemented.

Criticism

By Nachverhandlungen between the (factory) and the damage (Fischer) another emission quantity can be agreed upon. Fischer pays for a further reduction of the contamination, it to the factory comes altogether to a welfare loss.

The Pigou tax hurts the total condition of the overall economic efficiency. Because enterprises are usually rather quantity as Preisanpasser, possibly leads the tax to market withdrawals.

In the case of an imperfect market even a welfare degradation is possible. A monopolist would take up the taxes to his calculation and anyway already does thus its production of still far reduce as he this for reasons of the maximization of profit.

For example incentives exist for building in the neighbourhood by the tax.

Result

The Pigousteuer is an effective means for the controlling of the economy. It is connected however also with welfare its penalties. An alternative represents the emission right trade.

Articles in category "Pigou tax"

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