Other things being equal,corrective taxation is superior to regulation in the long run because it _____.
A)gives the producer an incentive to find a way to reduce external costs
B)the tax revenue can be used as compensation
C)the tax revenue can be used on other parts of the budget
D)is more burdensome on the producers of the externality

Question

Quizplus · Accepted Answer

Corrective taxation creates an economic incentive for the producer to reduce external costs. The producer will be motivated to find ways to reduce the costs in order to avoid the tax. Regulation, on the other hand, sets specific rules for the producer to follow, but does not give an economic incentive to reduce costs.

Other Things Being Equal,corrective Taxation Is Superior to Regulation in the Long