Pigovian Tax

A Pigovian tax is a financial charge imposed on activities that generate negative externalities, such as pollution. The idea is to make the responsible parties pay for the social costs associated with their actions, encouraging them to reduce harmful behavior. For example, a tax on carbon emissions aims to lessen air pollution by incentivizing companies to adopt cleaner practices. The revenue generated can be used to fund environmental initiatives or public goods, helping to align private costs with societal welfare and promote a healthier environment.