One problem with the effectiveness of Pigovian taxes is:
A) knowing whether to impose it on the consumer or producer.
B) knowing what the value of the tax should be.
C) identifying those who are affected by the externality.
D) none of these are problems.

Question

Quizplus · Accepted Answer

The value of the Pigovian taxes should reflect the true marginal cost of the externality, which can be difficult to determine. If the tax is too high, it may cause unintended consequences, such as reducing consumption of a good that has positive externalities, while if it is too low, it may not effectively reduce the negative externality. The other options may be factors to consider, but they do not necessarily make Pigovian taxes ineffective.

One Problem with the Effectiveness of Pigovian Taxes Is