A Pigouvian tax is a tax on the generator of negative externalities, and is named after the Cambridge Economist Arthur Cecil Pigou (1877–1959). A Pigouvian tax is often referred to as a ‘sin tax’.
Pigou argued that a unit tax on harmful products, such as cigarettes, would be an effective may of establishing an efficient equilibrium price, which took into account the negative effects on consumption.
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