The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Pigouvian Taxes

  • Agnar Sandmo
Reference work entry


Pigouvian taxes are taxes designed to correct for negative external effects. The idea is originally due to Pigou (1920), and has received increased attention in recent years because of the concern with environmental issues. This article sets out the basic theoretical argument and considers the modifications of the theory that have to be made when these taxes are seen in the context of an otherwise distortionary tax system. It also briefly considers the issue of the ‘double dividend’ from a green tax reform.


Distortionary tax Double dividend Externalities Lump sum taxes Marginal cost of public funds Optimal taxation Partial equilibrium Payroll tax Pigou, A. C. Pigouvian taxes Ramsey tax Substitutes and complements Tax base Tax wedge 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Atkinson, A.B.., and N. Stern. 1974. Pigou, taxation and public goods. Review of Economic Studies 41: 119–128.CrossRefGoogle Scholar
  2. Bovenberg, A.L. 1999. Green tax reforms and the double dividend: An updated reader’s guide. International Tax and Public Finance 6: 421–443.CrossRefGoogle Scholar
  3. Musgrave, R.A. 1959. The theory of public finance. New York: McGraw-Hill.Google Scholar
  4. Pigou, A.C. 1920. The economics of welfare. 4th ed, 1932. London: Macmillan.Google Scholar
  5. Pigou, A.C. 1928. A study in public finance. 3rd ed, 1947. London: Macmillan.Google Scholar
  6. Ramsey, F.P. 1927. A contribution to the theory of taxation. Economic Journal 37: 47–61.CrossRefGoogle Scholar
  7. Sandmo, A. 1975. Optimal taxation in the presence of externalities. The Swedish Journal of Economics 77: 86–98.CrossRefGoogle Scholar
  8. Sandmo, A. 2000. The public economics of the environment. Oxford: Oxford University Press.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Agnar Sandmo
    • 1
  1. 1.