IDEAS home Printed from https://ideas.repec.org/a/sae/amerec/v64y2019i2p282-292.html
   My bibliography  Save this article

Illustrating the Difference Between a Pigovian Tax and Emissions Fee Using Isoquant and Isocost Geometry

Author

Listed:
  • Christopher S. Decker

Abstract

The study of environmental economics is motivated by the idea that pollution constitutes a negative externality. When production costs do not include the harm to human health and the environment, the market price is too low and output levels are too high, relative to the efficient levels. The initial solution to this problem is usually the “the Pigovian tax†on production. However, all subsequent tax analysis focuses directly on emissions. This tends to leave students wondering (a) why discuss Pigou in the first place and (b) why is it better to focus on pollution emissions rather than production. I provide a graphical analysis, using isoquant and isocost geometry, to illustrate that a direct fee on the externality-generating input is more efficient than a tax on output. This analysis is something teachers might consider utilizing to clarify why there is a transition from output taxation to input taxation. JEL Classifications : A22, A23, Q50

Suggested Citation

  • Christopher S. Decker, 2019. "Illustrating the Difference Between a Pigovian Tax and Emissions Fee Using Isoquant and Isocost Geometry," The American Economist, Sage Publications, vol. 64(2), pages 282-292, October.
    • Handle: RePEc:sae:amerec:v:64:y:2019:i:2:p:282-292
    DOI: 10.1177/0569434519835775
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0569434519835775
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0569434519835775?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Mark Holmgren, 2017. "From Continuous to Discrete: An Alternative Approach to Teaching Consumer Choice," Journal of Economics Teaching, Journal of Economics Teaching, vol. 2(1), pages 1-13, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Scott Wolla, 2018. "The Textbook Treatment of Net Exports: Will the Uninformed Reader Understand?," Journal of Economics Teaching, Journal of Economics Teaching, vol. 3(2), pages 232-253, December.
    2. Christopher S Decker, 2020. "Illustrating the Difference between Emissions Fees and Abatement Subsidies Using Isoquant and Isocost Geometry," Journal of Economics Teaching, Journal of Economics Teaching, vol. 5(1), pages 37-50, May.
    3. Stephen Erfle, 2019. "Discussing Substitutes and Complements in an Economics Principles Classroom with Discrete Choice Consumer Utility Tables," Journal of Economics Teaching, Journal of Economics Teaching, vol. 4(2), pages 93-114, December.
    4. Jane E. Ihrig & Scott A. Wolla, 2020. "Let's Close the Gap: Revising Teaching Materials to Reflect How the Federal Reserve Implements Monetary Policy," Finance and Economics Discussion Series 2020-092, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    emissions fees; Pigovian tax; isoquants and isocost applications; social welfare;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:amerec:v:64:y:2019:i:2:p:282-292. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://journals.sagepub.com/home/aex .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.