A corrective tax on polluting firms equal to the external cost imposed on third parties will:

Question

Quizplus · Accepted Answer

A corrective tax will force polluting firms to take into account the external costs they impose on third parties. By internalizing this cost, polluters will have to pay for the harm caused by their pollution, which will incentivize them to reduce pollution levels up to the point where the marginal abatement cost equals the marginal damage cost. Therefore, a corrective tax will decrease pollution levels without necessarily eliminating it.

A Corrective Tax on Polluting Firms Equal to the External