Sunday, June 15, 2008

Update: More from the Pigou Club

Here is Charles Wheelan (The Naked Economist) writing about a carbon tax. He makes an additional point about Pigouvian taxes that I left out of my previous post. Referring to the consequences of the higher price of gas he writes:

"I will add, perhaps gratuitously, that the behavioral changes we're seeing now are exactly why we should have implemented a carbon tax (with offsetting income tax or payroll tax cuts) 10 years ago. Given that we have to raise revenue somehow, we ought to do it by taxing behaviors that we would prefer to discourage. An income tax discourages work; a carbon tax discourages pollution. Which one makes more sense to you?"

Taxes serve two important functions: they raise revenue for government and discourage whatever behavior is being taxed. In America, income and investments are taxed at a higher rate than consumption. At a time when we're all so concerned about public and private debt, maybe this is something we should rethink.

Also, check out Wheelan's terrific book, Naked Economics: Undressing the Dismal Science. It's the best introduction to economics out there, and one of the only ones that wont put you to sleep.

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