Equal to external Cost, Pigou is a market tax that imposes an additional cost on those who aren't directly involved in the transaction, or a negative externality. Examples include taxes on carbon, sugar, and cigarettes.
Pigouvian taxes are primarily used to counteract market inefficiencies by raising the marginal private cost by the amount of the negative externality's production. The total social cost of the economic activity will be reflected in the final cost (original cost + tax) in this scenario.
Any action that generates socially negative externalities is subject to a Pigouvian tax. Pigouvian taxes shift the burden of paying for these externalities from society to those who produce them. Examples of Pigouvian taxes include those on gas, carbon, and noise.
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