Most economists believe that the government should impose Pigouvian taxes on firms that produce negative externalities like pollution, yet regulatory agencies hardly ever use their authority to create Pigouvian taxes. Instead, they issue command‐and‐control regulations. Our major point is that, contrary to the conventional wisdom, regulators typically have legal authority to create Pigouvian taxes—they just do not use it. While regulators may hesitate to impose Pigouvian taxes for a range of political and symbolic reasons, we argue that these reasons do not justify this massive failure of regulatory efficiency. It is time for the regulatory state to take a Pigouvian turn.
Toward a Pigouvian State
- Jonathan S. Masur & Eric A. Posner
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- Jonathan Masur: John P. Wilson Professor of Law and David and Celia Hilliard Research Scholar, University of Chicago Law School.Eric Posner: Kirkland & Ellis Distinguished Service Professor and Arthur and Esther Kane Research Chair, University of Chicago Law School.