Edgeworth’s taxation paradox states that a unit tax can decrease the market price of a good. This paper presents a new version of the paradox in which a tax reduces price — and increases industry output — because it attracts additional entry into the market. It is particularly striking that the demand conditions under which cost pass-through exceeds 100% for a …xed number of …rms are also those for which passthrough can turn negative with endogenous entry. A novel application to the environment shows that a Pigouvian emissions tax can lead to an increase in industry emissions. A basic principle of environmental policy therefore fails under the conditions of the paradox.