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A Pigouvian Tax is a tax on "external activities". These activities, called externalities, are actions not taken into account by the acting party. The tax is named for the economist A. C. Pigou (who also developed the concept of externalities).
As an example, pollution is an external activity to many industrial processes. Therefore, the government might impose a tax on polluters. There also exists the concept of a "negative tax", or a subsidy, to encourage certain behaviors (such as, say, starting a business in an underdeveloped area).
One argument that have been put forward against Pigouvian taxes is that in certain condition, they can leads to level of pollution that is under the social optimum.
However, economic theory predicts that under a situation of high transaction costs of mutual agreement between parties, and diffuse pollution, Pigouvian taxes will be an efficient way to promote public interest and will leads to an improvement of the quality of life mesured by the Genuine Progress Indicator and other human economic indicator.
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