Regardless of whether a negative externality is emitted by consumers or by producers, a Pigouvian tax can be imposed on consumers only.

Question

Quizplus · Accepted Answer

A Pigouvian tax is a tax designed to internalize the cost of a negative externality. It can be imposed on either consumers or producers, depending on who is responsible for generating the negative externality. For example, a tax on cigarettes is a Pigouvian tax imposed on consumers because they are the ones causing the negative externality (secondhand smoke), while a tax on carbon emissions is a Pigouvian tax imposed on producers because they are the ones causing the negative externality (climate change). Therefore, the statement in the question is false.

Regardless of Whether a Negative Externality Is Emitted by Consumers