Economic Policy and the Environment Assignment Example | Topics and Well Written Essays - 250 words

Economic Policy and the Environment - Assignment Example To curb, environmental externalities, many laws have been enacted to remedy or deter environmental pollution. One of these laws is the A Pigovian tax. This is a tax that is applied to someone who is causing negative externalities in the environment. The tax law is intended to correct inefficiencies resulting from market activities. It operates by setting equal the social costs of the negative externalities resulting from economic production. In a normal economic production, the presence of negative externalities is not compensated for by the benefit accruing from the production processes (Burrows, 2009). This makes the market inefficient and may lead to overconsumption of the product. Besides, this may result in an equal distribution of resources in the society as the producer benefit to the detrimental of the environment. Through applying such taxes, negative externalities would be reduced to have an equal distribution of benefits resulting from the resources. This reduces cases of environmental pollution which has resulted in extreme catastrophic environmental destruction. This law was instituted by an economist Arthur Pigou in collaboration of William Baumol. Since its inception, the tax law has proven efficient in reducing environmental externalities (Sandmo,