I don’t know where this “old adage” of yours comes from, but a tax can be a useful tool for solving some problems. A carbon tax, for example, would be a tax not intended to collect money, but instead intended to modify behaviors, and correct a market inefficiency. This is one example of a pigouvian tax.
I was being a bit glib—of course there are some variations of taxation that fit pretty well with non-revenue policy goals. I do think they’re less frequently a good match, and MUCH less often implemented reasonably than wonks and economists (and rationalist chatterers) seem to believe.
I’m not sure how well any real carbon taxes have worked in terms of revenue OR reducing overall emissions. I haven’t studied deeply, so I could easily be wrong (and would love to learn), but my sense is that they’re applied unevenly and are somewhat easy to game, so tend not to actually get paid. Which makes them non-Pigouvian, as the revenue isn’t enough to actually mitigate the harm.
I’m not sure how well any real carbon taxes have worked in terms of revenue OR reducing overall emissions.
I don’t know either, I know that carbon taxes are widely considered to be a good tool against amongst economists, but I don’t know if the real carbon taxes have been evaluated.
Which makes them non-Pigouvian, as the revenue isn’t enough to actually mitigate the harm.
I’m not sure I follow you here. The role of a pigouvian tax is to correct market inefficiencies, not produce revenue.
The classical model goes as follows: assume a factory with a production level x produces x utility for itself, but causes −x2/2 for others. The optimum in term of total utility would be x=1, but since the factory doesn’t pay for this externality, it can produce much more. This is inefficient.
Now you introduce a tax amounting to −x2/2. The factory does the math and reduces its production to x=1, reaching the utility maximizing solution. Now you also receive x2/2 which you could redistribute to whoever suffers from the factory but you don’t need to. The optimum is reached whenever the tax is applied, regardless of whether or not the “victims” are being compensated. You could introduce a tax of x2/2−1/2, this way producing no revenue at the equilibrium, and the result would be the same.
If now the factory is very good at dodging taxes and only pays x2/10 for some reason, it will still have an incentive to reduce its production. The new optimum will not be x=1, but introducing such a tax will still move the system closer to the optimum.
(Although introducing a new tax could also have some negative effects, especially if all actors are not equally good at dodging taxes, so there is surely a level at which, if such a system is too easy to game, it becomes detrimental)
Hmm, I’m apparently misremembering the rationale Pigeau used—certainly including the cost in the producer’s optimization calculation is one part of it, but I thought it was also calculated to compensate or offset the damage from the externality. You’re absolutely right that “tax what you don’t want, subsidize what you do” is a core element of tax theory, but I will still argue that it’s secondary to the core of tax reality, which is that revenue is the real metric of impact.
I don’t know where this “old adage” of yours comes from, but a tax can be a useful tool for solving some problems. A carbon tax, for example, would be a tax not intended to collect money, but instead intended to modify behaviors, and correct a market inefficiency. This is one example of a pigouvian tax.
I was being a bit glib—of course there are some variations of taxation that fit pretty well with non-revenue policy goals. I do think they’re less frequently a good match, and MUCH less often implemented reasonably than wonks and economists (and rationalist chatterers) seem to believe.
I’m not sure how well any real carbon taxes have worked in terms of revenue OR reducing overall emissions. I haven’t studied deeply, so I could easily be wrong (and would love to learn), but my sense is that they’re applied unevenly and are somewhat easy to game, so tend not to actually get paid. Which makes them non-Pigouvian, as the revenue isn’t enough to actually mitigate the harm.
I don’t know either, I know that carbon taxes are widely considered to be a good tool against amongst economists, but I don’t know if the real carbon taxes have been evaluated.
I’m not sure I follow you here. The role of a pigouvian tax is to correct market inefficiencies, not produce revenue.
The classical model goes as follows: assume a factory with a production level x produces x utility for itself, but causes −x2/2 for others. The optimum in term of total utility would be x=1, but since the factory doesn’t pay for this externality, it can produce much more. This is inefficient.
Now you introduce a tax amounting to −x2/2. The factory does the math and reduces its production to x=1, reaching the utility maximizing solution. Now you also receive x2/2 which you could redistribute to whoever suffers from the factory but you don’t need to. The optimum is reached whenever the tax is applied, regardless of whether or not the “victims” are being compensated. You could introduce a tax of x2/2−1/2, this way producing no revenue at the equilibrium, and the result would be the same.
If now the factory is very good at dodging taxes and only pays x2/10 for some reason, it will still have an incentive to reduce its production. The new optimum will not be x=1, but introducing such a tax will still move the system closer to the optimum.
(Although introducing a new tax could also have some negative effects, especially if all actors are not equally good at dodging taxes, so there is surely a level at which, if such a system is too easy to game, it becomes detrimental)
Hmm, I’m apparently misremembering the rationale Pigeau used—certainly including the cost in the producer’s optimization calculation is one part of it, but I thought it was also calculated to compensate or offset the damage from the externality. You’re absolutely right that “tax what you don’t want, subsidize what you do” is a core element of tax theory, but I will still argue that it’s secondary to the core of tax reality, which is that revenue is the real metric of impact.