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 internalizes the cost of externalities caused by the utility

Question

Quizplus · Accepted Answer

A Pigovian tax is a tax on a good or service that creates negative externalities, such as pollution. The purpose of the tax is to internalize the cost of the negative externality, making the price of the good or service reflect its true cost to society. Option D is an example of a Pigovian tax because it imposes a tax on a utility to internalize the cost of the externalities it causes through pollution.

Which of the Following Is an Example of a Pigovian