Which of the following is an example of a Pigovian tax?
A) payments by utilities to obtain tradable emissions allowances
B) a payroll tax
C) payments for licenses to pollute
D) a tax imposed on a utility that internalises the cost of externalities caused by the utility

Question

Quizplus · Accepted Answer

A Pigovian tax is a tax imposed on a company or industry that internalizes the cost of the negative externalities they create. By internalizing the cost, the tax incentivizes the company to reduce their negative impact on society. In this case, choice D is the only example of a tax that internalizes the cost of externalities, making it the correct answer. Choices A, B, and C all involve payments or taxes, but they do not specifically address negative externalities in the same way that a Pigovian tax does.

Which of the Following Is an Example of a Pigovian