Pigouvian tax

Pigouvian tax – definition

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.

• Read more on negative externalities