The Taxation of
polluting activities
A “problematical” solution
1. THE PIGOUVIAN IMPOSE
2. THE ADVANTAGES IN
COMPARISON TO THE
SATANDARD SYSTEM
3. THE PROBLEM OF THE PRACTICES
3.1 The cognitive requisite
3.2 Equity
3.3 The political sustain
4. THE EFFECTS ON CONSUMERS
How to tax the enterprises for the
pollution they cause?
Pigou (1920):
To establish the tax on the base of damage
estimation provoked from polluting emissions
(Pigovain tax)
For determining the amount of the
Pigauvian tax we will determine how
the environmental damage vary with
the level of the produced quantity
individualizing a
level of perfect production socially ...
... In which marginal benefit for the
enterprise and marginal cost of the
society in producing a unit is equal.
The Pigouvian tax is that which
increase the marginal cost of the
enterprise in such way to maximize
the profit !
In other words, the tax transforms
the social cost of the polluting to
private cost of the enterprise that
produces it …
It is known that the value of the
tax that allows reaching such
result is exactly the value of the
damage of polluting in
correspondence
of the perfect quantity !
So I require the knowledge
of the exact value of the
damage:
In practice it is necessary to
adopt approximate solutions
that won’t be perfectly efficient.
Fixing the tax rather than a
standard level of valid production
for all enterprises ...
... It is allowed to choose
autonomously how to modify
its proper level of production
according to its really
polluting potential.
The results are probably a great
general profit for the enterprise
in the case of standard tax and
therefore a great efficiency.
Besides the choice
of a standard level of production
and therefore
of emission we can not generally
rely on the knowledge of the
profit curves of the enterprises ...
... And therefore
It will have a strong
component of arbitrariness and
won’t coincide socially with the
perfect level !
There is then a problem of the
(missed) standard:
What happen if the enterprise
disobey and produce more
than the allowed quantity ?
If the punishment is a
fine of non – elevated
amount ...
To the enterprises it can be
worthwhile to infringe until the
marginal benefit of every
‘forbidden’ unit is at least equal
to the value of the fine to pay !
The only way to prevent this
type of behaviors is to fix the
level of the fine in
correspondence of that of The
piggouvian tax !
But now
It is worth to choose the
approach based on the
taxation !
And on the other hand , the fixation
of a different standard from the


Perfect level constitutes a loss for the
society it is produced (pollutes)
Because it is produced (pollutes) too little
The ulterior advantages of the
imposed system in comparison to the
standard are:
 A great facilities of administration
 A great incentive to the containment
of the pollution costs
In the case of taxation
an enterprise that found the way to
reduce its own polluting missions
with low cost would have an
incentive to do it ...
... While in the case of the
standard these stimulates
would not exist !
Accordingly ,
The enterprise would be
stimulated to invest in the
search of less polluting
technologies !
Effects of complementarities between
the polluting issue:
The search of technologies with minimum
environmental impact can also induce the
pollutants to the reduction of the
emissions…
... What they produce in the
chemical cycle is the same that
they intend to fight !
The true problem however is:
How do they evaluate exactly the cost of
the pollution ?
Therefore,
How is the level of the tax settled down ?
We need information
- On the methods of production
adopted by the enterprise
- On the production of pollution
- On the long term effects of such
pollution
- On the levels of human exposure to the
pollution
- On the consequences of such exposure
in terms of physical damages
- On the financial evaluation of the cost of
the damage
Besides, the evaluation of the benefit for
the enterprise also requires a precise
knowledge of their curves of questions
and the structure of the private costs
(non - environmental)...
... Without which it is impossible to
individualize the perfect point socially!
Also these information can be
manipulated according to the
interested parts
The Pigouvian tax
constitutes an application
of the PIP that is also able
to penalize the enterprise.
We could verify
political pressures to move part of the
pollution costs on the society through the
fixation of a bland standard as an
alternative to the taxation.
The problem is born from the
fact, of the presence of a
Pigouvian tax correctly
calculated...
The enterprise produces a quantity of
sustainable pollution and therefore
derived from the environment within
reasonable limits.
Accordingly,
The enterprise is forced to pay for a
productive activity that doesn’t
produce undesirable consequences
on the environment !
This can seem unfair, but on the
other hand if the enterprise
were forced to pay ...
... It would produce indeed a
level of harmful pollution
for the environment !
Similar consideration are so
problematic to the political level and
they often play against the adoption of
the system.
From the point of view of the users
the tax creates a problem in how
much the enterprise will have an
incentive to increase the price of its
production
Trying to transfer the tax on the user
The result is a change in the curve of
offer toward the top which means a
minor level of production/consumption
of property ...
... Even if it is not equal to the
whole amount of the tax.
The effect of the tax on the users will
be very strong as their demand for
some property is inelastic ...
... It means that the demand for a
quantity depends on low price
for instance because property is ‘essential’
for some motive.