Pigouvian
pih-GOO-vee-un
/pɪˈɡuːviən/
Relating to taxes or subsidies designed to correct market outcomes distorted by negative or positive externalities.
Specifically refers to setting a tax equal to the social cost of an externality to align private incentives with social welfare.
The story behind the word. Derived from the name of Arthur Cecil Pigou, a Cambridge economist who published 'The Economics of Welfare' in 1920. He proposed using government levies to bridge the gap between private and social costs.
Word relationships
- corrective tax: Corrective tax describes the general function, whereas Pigouvian specifically credits Arthur Pigou's precise economic tax framework.
- distortionary tax: A distortionary tax strays from optimal outcomes, whereas a Pigouvian tax corrects an existing distortion toward social equilibrium.
Commonly confused with
- externality: Externality is the market problem; Pigouvian describes the policy tax or subsidy designed to fix it.
Collocations
- Pigouvian tax
- Pigouvian subsidy
- Pigouvian corrective measure
Example sentences
- "A carbon tax is a classic Pigouvian tax designed to make polluters pay for damage inflicted on atmosphere." Environmental economic strategy
- "Proponents argue that high duties on sugary drinks function as Pigouvian measures to offset healthcare costs." Public health fiscal policy
Memory hook
PIGOU-vian = PIGOU'S tax to eliminate harmful pollution. Tax that fixes external harms.
When not to use
Do not use for general government revenue taxes like basic income tax or simple sales tax.
Fun facts
- While economists almost universally praise Pigouvian taxes in theory, politicians often find them hard to pass due to public resistance to new taxes.
Related words
Explore more words
protectionism, incentive, redistribution, subsidy, punitive, stimulus
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