Pigouvian tax Guide, Meaning , Facts, Information and Description
A Pigouvian Tax is a tax on "external activities". These activities, called externalities, are actions not taken into account by the acting party. The tax is named for the economist A. C. Pigou (who also developed the concept of externalities).
As an example, pollution is an external activity to many industrial processes. Therefore, the government might impose a tax on polluters. There also exists the concept of a "negative tax", or a subsidy, to encourage certain behaviors (such as, say, starting a business in an underdeveloped area).
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