Pigovian Research Articles

The implementation of carbon tax as an emission reduction instrument policy in the Nordic countries: Pigovian tax effect analysis

The implementation of carbon tax as an emission reduction instrument policy in the Nordic countries: Pigovian tax effect analysis

On the economic growth and environmental quality nexus in India

ABSTRACT This study extends prior research and takes a robust account of the effects of economic growth on environmental quality in India, using several single-equation and system estimators and considering multiple structural breaks over ‘long’ as well as ‘short’ time periods. The long-run model is estimated on annual data for the period 1951–52 to 2015–2016. The results provide robust support for the positive and significant effects of gross domestic product and financial development and for the negative effects of trade openness and domestic investment on carbon dioxide emissions. The presence of structural breaks challenges the validity of smooth and continuous relationship between income and emissions postulated in previous research. Policy intervention, in terms of the imposition of Pigouvian tax, allocation of carbon quotas and promotion of carbon ‘cap-and-tax’ and/or ‘cap-and-trade’ systems, is needed to correct market failure, to cover the external cost of pollution and to curtail the emission of carbon. It is worth subsidizing alternative sources of energy, adopting carbon-efficient technologies and switching to carbon-neutral substitutes.

Can policy packaging help overcome Pigouvian tax aversion? A lab experiment on combining taxes and subsidies

Tax aversion makes it politically challenging to introduce Pigouvian taxes. One proposed solution to overcome this resistance is to package policies. Using an online lab experiment, we investigate whether combining a tax and a subsidy is perceived as more acceptable than the tax or the subsidy alone. The purpose of the policies is to reduce demand for a good with a negative externality to the socially optimal level. We find that support for a combination of a tax and a subsidy equals the simple average of support for the two instruments alone. Combining a tax and a subsidy therefore does not reduce tax aversion. We examine potential mechanisms behind the tax aversion. Participants believe they will receive a lower share of the tax revenue when the tax is implemented alone than when it is combined with a subsidy, i.e. the participants in the tax alone group hold more pessimistic beliefs about the tax revenue. We also find that the participants expect the tax to be more effective in reducing demand for the good with a negative externality than both the subsidy alone and the combinations of tax and subsidy. This belief does not, however, translate into support for the tax.

Equal tax and equal compensation: A fair and efficient way to save climate

We show that “equal tax and equal compensation” (T&C) is fair as justified by the two fairness principles. It differs from any Pigouvian tax with fixed lump-sum payments and can motivate every country to maximize world welfare. It benefits countries with current per capita emissions lower than the world average and would benefit every country when compared with a fair benchmark where emissions are duly penalized and compensated. Subsidizing emission reduction by poll tax is Pareto efficient and Pareto improving over status quo, but unfair. An imperfect T&C with a sub-optimal tax or pyramid taxes can still benefit the world.

Evaluating the revenue and taxation implications of cannabis legalization in South Africa: Insights from Canada and the United States

Purpose: This study aims to evaluate the impact of cannabis legalization on revenue mobilization and taxation in South Africa by analyzing the experiences of jurisdictions that have legalized cannabis. Methodology: A qualitative approach was employed, including a literature review and trend analysis. Data from Canada, California, Colorado, and Washington State, where cannabis has been legalized, were analyzed for 2018-2021. Results: The findings demonstrate that cannabis legalization significantly impacts revenue collection and taxation. However, optimal pricing and taxation policies are crucial to capture the illicit market, minimize negative externalities, and ensure industry growth. Legacy growers and previously disadvantaged individuals should be integrated into the legal market. Theoretical Contribution: The study contributes to the theoretical framework of Pigouvian taxation by examining its applicability to the cannabis industry and the challenges posed by illicit markets and product substitutability with alcohol and tobacco. Practical Implications: The study provides recommendations for South African policymakers on taxation policies, market regulation, and inclusive strategies to ensure a successful and sustainable cannabis industry while maximizing revenue mobilization.

Environmental taxation of plastic bags and substitutes: Balancing marine pollution and climate change

Several countries have imposed either a ban or a tax on single-use plastic packaging, motivated by their contribution to marine plastic pollution. This may lead consumers to opt for similar unregulated substitutes, potentially undermining or even counteracting the intended effect of the policy instrument. The purpose of this study is to theoretically and empirically compare the environmental and welfare effects of the first-best Pigouvian taxes on both plastic bags and a substitute (paper bags), with two alternative second-best policy instruments: a tax on plastic products alone, and a common uniform tax on all packaging materials. The empirical analysis accounts for two different types of environmental externalities from the use of both bag types: marine pollution and greenhouse gas emissions. It also compares results for two countries, Denmark and the USA, which differ in the demand for plastic and paper bags. The theoretical analysis shows that a unilateral tax on plastic bags should equal the marginal environmental damage of plastic bags minus a fraction of the marginal environmental cost of paper bags, hence being lower than the Pigouvian tax. The optimal common tax should equal a weighted average of the marginal environmental damage of the two bag types and would be lower than the Pigouvian tax on plastics if the marginal external cost of plastic bags exceeds that for paper bags. The empirical analysis shows that for default parameters, the variation in tax level across the studied scenarios is small. It also shows that if Pigouvian taxes cannot be implemented, a common uniform tax on both bag types would result in a higher welfare gain than a tax on plastic bags alone. Sensitivity analysis reveals that the level of the second-best taxes and their associated environmental and welfare impacts are sensitive to assumptions regarding the littering rate and decay rate of plastic bags in the marine environment.

Economic instruments for water conservation: Charging for water use and the Pigouvian tax for mitigating water pollution

This paper presents an analysis of the economic instruments applied to water conservation, with a focus on charging for water use and the Pigouvian tax, and also addresses the synergistic integration of these instruments with other water management policies, involving a holistic approach to water conservation. In addition, the challenges in implementing these mechanisms are discussed, including political resistance and issues of social constraints. Methodologically, an interdisciplinary approach was adopted, combined with quantitative and qualitative analysis, followed by evaluation and representative case studies from different geographical and economic contexts. It is clear that the understanding and application of economic instruments in water conservation provides a robust theoretical framework and empirical evidence to support the effectiveness of charging for water use and the Pigouvian tax, which is crucial for promoting sustainable water resource management and mitigating water pollution on a global scale. In Brazil, charging for water use plays a crucial role in promoting the sustainable management of water resources, in line with principles of equity, efficiency and socio-environmental responsibility. However, its effectiveness depends on integration with other management strategies and the active involvement of all sectors of society.

Policy Responses To Fake News On Social Media Platforms: A Law And Economics Analysis

Abstract Fake News is one of the major techno-policy challenges faced by modern societies. As popular discourse shifts to social media platforms, Fake News on the internet has increased drastically, generating significant costs for society. Consequently, there is a regulatory movement across the globe to mitigate fake news on these platforms. A law and economics analysis offers valuable insights towards devising an appropriate regulatory approach to tackling this issue. In economic terms, Fake News can be conceptualized as a negative externality, while Fact-Checking and Content Moderation Services may be defined as public goods. There exists a misplaced individual incentive to create fake news on social media platforms. A clear case of market failure and thus a need for state intervention can be made out. While direct state regulation of platforms is the preferred approach by regulators for mitigating fake news, this paper cautions against over-reliance on such a ‘negative state’ regime, due to censorship risks and enforcement costs. This paper recommends adoption of a multi-pronged strategy, including a statutory Pigouvian tax to internalize social costs of fake news on social media platforms within the market, by channelling resources towards promoting positive state measures to mitigate the broader effects of fake news on these platforms. This paper’s analysis is largely located in the Indian context, with references to other jurisdictions.

Implementation of the mechanism of systemic risk internalisation in the deposit market (pigou tax principle)

The deposit guarantee fund’s rate cap mechanism was supplemented by a systemic risk fee based on the Pigou tax principle. The additional systemic risk fee was introduced to curb overly aggressive price competition in the deposit market by creating additional explicit financial costs that can offset the gains to individual banks from increasing their deposit market share. However, the existing inelasticity of the implemented mechanism, manifested by the lack of stable pressure across the entire range of rates, necessitates its reform. In this article the authors reveal the details of the implemented mechanism of internalisation of systemic risk in the deposit market, the reasons that prompted its implementation, assessment of its success and ways of further reform.

THE THEORY OF WELFARE ECONOMICS AND TAX REGULATIONS: AN EMPIRICAL EXAMPLE OF PIGOUVIAN TAXES

The aim of this paper is to present the impact of the economic theories and empirical studies on the contemporary tax laws and regulations in numerous jurisdictions, based on a case study of the economic concept of Pigouvian taxes which stems from the neoclassical theory of welfare economics. The author presents the theoretical concept of the Pigouvian taxation and its econometric verification and tries to demonstrate that the empirical examples of the implementation of such fiscal instruments have proved to be effective based on the quantitative assessment. However, serious deficiencies in the methodology of empirical studies on this phenomenon can also be identified, which affects the possibility of assessing the potential practical implications of introducing such mechanisms. Nevertheless, as the author demonstrates by referring to the World Bank data, the discussed concept significantly influences contemporary tax law in many countries and is a source of inspiration for many tax jurisdictions. The analysis carried out in this paper indicates that not every implementation and post-hoc evaluation of economic theory implemented into tax systems can be effectively studied with the use of economic analysis of law; when analysing regulations introduced to influence the behaviour of individuals, it is also necessary to take into account the research in other disciplines, for example psychology and sociology, even if the inspiration for the regulations in question was well-grounded and developed in economic theories. For this reason, it can be argued that economic analysis of law, also referred to as law and economics, although a valuable cognitive approach, should never be the only basis of analysis, even if a regulation in question has a strictly economic origin.

A Comprehensive Assessment of Conventional Petrochemicals and Bio-based Alternatives in Polymer Production

This research explores the environmental impact of propylene production, especially conventional polypropylene (PP) which constitutes 16% of the global plastic industry. The production methods, including steam cracking and fluid catalytic cracking, significantly contribute to both greenhouse gas emissions (28%) and fossil resource use (23%). In response, the paper advocates for a transition to bio-polypropylene, foreseeing global market growth from $94.8 million in 2021 to $996.9 million in 2028, with a compound annual growth rate of 39.9%. Bio-polypropylene offers a reduced carbon footprint and better alignment with production sustainability goals. However, the paper also addresses potential challenges in this transition, including impacts on food security and increased water consumption for cultivation of bio-mass. The research recommends strategic policy interventions, such as Pigouvian tax and subsidies, to facilitate a gradual shift, emphasizing the importance of balancing economic feasibility and environmental sustainability.

Renewable technology adoption costs and economic growth

In the presence of rapid technological progress, early technology adoption may result in large capital replacement costs. We develop an analytical Integrated Assessment Model that incorporates endogenous scrapping costs resulting from new technology adoption in renewable energy, as well as externalities associated with carbon emissions and renewable technology spillovers. We use our calibrated model to investigate the effects of the scrapping channel on renewable technology adoption and on the optimal energy transition. In the absence of a Pigouvian carbon tax, a second-best policy that incentivizes renewables through internalizing spillovers provides relatively small benefits and can even be detrimental to short-run growth. In contrast, the reduction in fossil fuel consumption resulting from internalizing technology spillovers is significantly larger if the Pigouvian tax is also in place. Comparing the status quo to the scenario where both policies are implemented results in a consumption-equivalent welfare gain of 1.4 percent. Our findings suggest that, in the presence of scrapping costs resulting from rapid technological progress, some caution might be warranted before concluding that direct subsidies are a suitable substitute for a Pigouvian carbon tax. When it comes to social welfare, carbon taxes and policies that promote renewables by eliminating spillover externalities are best thought of as complements rather than substitutes.

Analysing crisis situations of seedlings and crisis conditions in palmyra palm stands in Burkina Faso

The regeneration system of Borassus aethiopum in Burkina Faso is the subject of several hypotheses. However, it is challenging to implement appropriate conservation strategies due to the lack of usage of bioeconomic approaches to support this or that perspective. The objective of this study is to settle this debate by assessing the status of palm tree stands using a bioeconomic model based on a dynamic equilibrium price. The data used in the study was gathered from thirty farming households in the study area in 2010, 2015, and 2020, as well as from monitoring thirty farm sites. The results show that, on average, there is an equilibrium between the rate of harvesting and the rate of regeneration of the palmyra palm. Nonetheless, market prices do not reflect the species' value, as they are between 28% and 166% below their implicit level. To ensure a proportionality coefficient between the equilibrium price and the resource constraint, a dynamic Pigouvian tax should be applied, taking into account the gap, the rate of exploitation, and regeneration.

The Synergistic Benefit Mechanism of Medical and Recreational Marijuana: Economic Gains of Cannabis Taxation based on US Federal Law for Corporate Governance and Sustainability

Purpose: Marijuana legalization is brought about by the demands of people as social utility either for medical or recreation consumption. It is essential that the control of cannabis fulfills the goals of corporate governance and sustainability. This paper aims to measure the profitability of marijuana taxation over a time period as trend analysis of economic gains.
 Methodology: The socio-legal taxation of marijuana in the United States follows a descriptive research design. The beneficial gains of marijuana as medical use created this substance to be controlled under contract law transactions. The removal of cannabis in US Pharmacopeia modified the tort law restriction for legalization of marijuana as recreational consumption. The recreational cannabis taxation together with medical marijuana state taxes are essential to fulfill the 4 pillars of corporate governance and sustainability for strengthening constitutional rights. The legalization of marijuana through votes of the people repeals the criminal punishments imposed by federal law to advocate the synergistic concepts of economic theory.
 Findings: State tax theory creates voluntary principles in transactions together with trend analysis in prices and demands of people resulting to efficiency in mutual gains through lessening the value of participation under a harmful environment. Hence, Pigouvian tax follows the public welfare of medical marijuana and common revenue of recreational cannabis diminishes the overall costs of social consumption. Federal laws control marijuana usage through Pigouvian taxes of medical use with lessened participation in externalities and common revenue in cannabis consumption, as a legalization process of other states in reinstating tort law for business purposes, while still enforcing criminal penalties to remaining states, in compliance with US federal laws, not in favor of medical and recreational marijuana use. The economic theory supports the legalization of medical and recreational cannabis use through taxation as profitable gains by allowing voluntary market transactions of marijuana as fulfillment to corporate governance and sustainability for more allocation of public funds. From 2002 to 2018, medical and recreational cannabis users increased to 70% of social utility through lessening the value of participation, a win-win in efficiency of economic design. In 2010, marijuana taxation generated $8.7 billion as federal public funds, with accompanied criminal penalties to other states.
 Recommendations: Economic theory is a conceptual design supporting the beneficial gains of legalizing marijuana via taxation. This economic design promotes fair responsibility of market gains while still in strict compliance of enforcing criminal punishments to violators. The people’s votes for legalization of marijuana taxation indicates that this economic policy has come by choice in a particular state as constitutional right of either a medical opinion or business ethics. However, cannabis is deemed to be a substance subject for criminal liabilities, similar to other patent drugs under taxation as well. Hence, it is suggested to create artificial intelligence using authorless works for clinical trials and other relevant studies subject to patent law of marijuana use, as advocacy of public welfare and safety since voluntary transactions are apparent harmful environment.

Does the implementation of a Pigouvian tax be considered an effective approach to address climate change mitigation?

This paper investigates the viability of environmental taxes as a means to mitigate greenhouse gas emissions within the European Union (EU) using the panel threshold model on two balanced panel data comprising countries from the European Union: the Northern and Western countries and Southern and Eastern countries for the period 2000–2020. The study's empirical results support the Pigouvian theory for developed countries, as they indicate an optimal minimum threshold for environmental taxes, where these taxes effectively contribute to reducing greenhouse gas emissions. However, the results diverge for emerging countries, revealing a maximum threshold for environmental taxes beyond which their impact in curbing emissions diminishes. To achieve the ambitious goal of climate neutrality, policymakers must adopt a comprehensive and diversified approach. This includes a combination of environmental taxes, more stringent regulations, and emission standards for industries. Additionally, the implementation of carbon pricing mechanisms, promotion of investments in sustainable fuels and technologies, and the establishment of low-carbon emission infrastructure are essential components of this strategy. By integrating these various measures, policymakers can better navigate the path toward climate neutrality and effectively combat climate change in the EU and beyond.

Revisiting the Pigouvian tax in urban roads: Housing supply restrictions, leaking profits and spatial inequality

I examine road taxes in a polycentric city where congestion coexists with housing supply restrictions. Despite the quantity distortion that housing supply constraints cause, I show that the socially optimal tax for using a road is still its marginal external cost. However, the artificial housing scarcity generates potential profits, which are either accrued by the construction sector or absorbed by raising land prices. If land rents and developer profits are not fully recycled within the urban area, the Pigouvian road tax ceases to maximize the welfare of that area. To maximize local welfare, road tolls should then lie below (above) their Pigouvian level insofar as they increase (decrease) housing demand in areas where supply cannot be adjusted upwards. I derive analytical formulas for the impact of other spatially relevant aspects on the optimal road tax. Property taxes and spatially invariant lump-sum transfers can both render the Pigouvian rule for taxing road externalities suboptimal.

Stress among UK consultant urologists and factors influencing when they leave full-time NHS practice

Objective: The UK medical workforce is in crisis. The number of surgeons in National Health Service (NHS) practice has decreased, partly because newly qualified doctors withdraw from the workforce, and partly because of the early retirement of experienced surgeons. The reasons for urological trainee loss are largely known, but stress factors influencing the retirement of consultants before state pension age (SPA) are not. Methods: An online survey of the consultant membership of the British Association of Urological Surgeons was carried out over a 12-week period starting in September 2020. Information was sought regarding stresses at work and home, together with factors affecting retirement decisions. Data analysis was performed if > 90% of questions were complete. Results: Overall, 36.5% of 1374 invitees completed the survey. Workplace-based issues were the main causes of stress: on-call, an unsupportive working environment, complaint handling and poor relations with hospital managers were predominant factors which were exacerbated by punitive taxation. Experienced urologists ameliorated these factors by reducing their contracted activity, increasing part-time working and, ultimately, retiring before SPA. Conclusions: Workplace-based factors are associated with stress reported by consultant urologists. Alleviation of stressor factors, especially those related to on-call activity, should be explored to reduce the erosion of the senior workforce. Level of evidence: Not applicable

The preferential treatment of green bonds

We study the preferential treatment of green bonds in the central bank collateral framework as a climate policy instrument within a DSGE model with climate and financial frictions. In the model, green and carbon-emitting conventional firms issue defaultable corporate bonds to banks that use them as collateral, subject to haircuts determined by the central bank. A haircut reduction induces firms to increase bond issuance, investment, leverage, and default risk. Collateral policy solves a trade-off between increasing collateral supply, adverse effects on firm risk-taking, and subsidizing green investment. Optimal collateral policy is characterized by a haircut gap of 20 percentage points, which increases the green investment share and reduces emissions. However, welfare gains fall well short of what can be achieved with optimal carbon taxes. Moreover, due to elevated risk-taking of green firms, preferential treatment is a qualitatively imperfect substitute of Pigouvian taxation on emissions: if and only if the optimal emission tax can not be implemented, optimal collateral policy features a preferential treatment of green bonds.

Low-Carbon Investment and Credit Rationing

This paper develops a principal-agent model with adverse selection to analyse firms’ decisions between an existing carbon-intensive technology and a new low-carbon technology requiring an externally funded initial investment. We find that a Pigouvian emission tax alone may result in credit rationing and under-investment in low-carbon technologies. Combining the Pigouvian tax with interest subsidies or loan guarantees resolves credit rationing and yields a first-best outcome. An emission tax set above the Pigouvian level can also resolve credit rationing and, in some cases, yields a first-best outcome. If a carbon price is (politically) not feasible, intervention on the credit market alone can promote low-carbon development. However, such a policy yields a second-best outcome. The issue of credit rationing is temporary if the risks of low-carbon technologies decline. However, there are social costs of delay if credit rationing is not addressed.

Pigouvian algorithmic platform design

There are rising concerns that reinforcement algorithms might learn tacit collusion in oligopolistic pricing, and moreover that the resulting ‘black box’ strategies would be difficult to regulate. Here, I exploit a strong connection between evolutionary game theory and reinforcement learning to show when the latter’s rest points are Bayes–Nash equilibria, but also to derive a system of Pigouvian taxes guaranteed to implement an (unknown) socially optimal outcome of an oligopoly pricing game. Finally, I illustrate reinforcement learning of equilibrium play via simulation, which provides evidence of the capacity of reinforcement algorithms to collude in a very simple setting, but the introduction of the optimal tax scheme induces a competitive outcome.