Pollution Charges as a Source of Public Revenues
The economic theory of environmental regulation revolves around the concept of an externality — a form of social cost that is not borne by the agent who is its source. The theory carries with it a straightforward policy implication: to correct for the misallocation, in this case excessive emissions of pollutants, the regulatory agency can place a charge, a unit tax, on the offending activity that is equal to the marginal social damage. Such a Pigouvian tax serves to internalize the social cost associated with polluting emissions and can sustain an economically efficient level of environmental quality.
KeywordsMarginal Abatement Cost Excess Burden Public Revenue Marginal Abatement Cost Curve Revenue Authority
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