Glamor Economics

Chapter 137

Chapter 17 Section 10 Economic development cannot be at the expense of the environment - Pigovian taxation
In the media, people often see such a sentence: "economic development cannot be at the expense of the environment." But in reality, not too much can really be achieved.So, is it driven by interests, or is law enforcement lax?Arthur the father of modern welfare economics?Cecil?Pigou gave his unique insights.

Pigou reveals the problem that a firm's (private) production costs may not reflect all the social costs of the product.When firms produce products, they consider only private costs—labor, raw materials, and assets that must be purchased.But production inevitably pollutes the environment, and these costs are compensated by third parties who neither produce nor consume.Here, the social cost of production exceeds the private cost; others bear part of the production cost of the product on behalf of the manufacturer and the consumer.

In such a situation, relying on the market alone will not achieve the best outcome.We have too many products that pollute the environment.Since the cost of pollution is imposed on a third party and has nothing to do with the manufacturer, the manufacturer is of course willing to adopt a technology that produces more pollution.The upshot of all this is that the market system creates too much polluted air and water, and excessive noise and congestion in cities.For example, although the construction of railways has facilitated people's travel, it has inevitably brought adverse effects on the lives of residents around the railways. In this regard, Pigou advocated that railways should compensate those who suffered losses due to the hazards of sparks and smoke from trains. farmers and other property owners.If so, they will have to be more careful and reduce the number of trains operating.In this way, private interests and social interests will no longer conflict, and externalities will be internalized or become part of the cost of goods transported by rail.

According to the degree of harm caused by pollution, the polluters are taxed, and the tax is used to make up the gap between the private cost of the polluter's production and the social cost, so that the two are equal.First proposed by the British economist Pigou, this tax is called "Pigouvian tax".

According to Pigou's point of view, the reason for the failure of market allocation of resources is that the private cost of the economic parties is not consistent with the social cost, and private optimality leads to social non-optimality.Therefore, the solution to correcting externalities is for the government to correct the private costs of economic agents through taxation or subsidies.As long as the government takes measures to make private costs and benefits equal to the corresponding social costs and benefits, resource allocation can reach a "Pareto optimal" state.This method of correcting for externalities is known as the Pigovian tax scheme.

The policy of "who benefits, who invests" in the field of infrastructure construction, and the policy of "who pollutes, who pollutes" adopted in the field of environmental protection are all specific applications of Pigouvian theory.

Western developed countries used tax policies to strengthen environmental protection starting in the 20s.Exploration and practice in many countries have proved that the use of tax means to control the environment has achieved obvious social effects, environmental pollution has been effectively controlled, and environmental quality has been further improved.

The United States began to impose a sulfur tax in the 20s.From the point of view of the collection method, the collection is generally calculated according to the sulfur content or emission of the main energy products.Carbon tax was first levied by Finland in 70. Carbon tax is generally levied on fossil fuels such as coal, oil, and natural gas at a fixed tax rate designed according to their carbon content. OECD (Organization for Economic Co-operation and Development) member countries have achieved gratifying results in applying economic instruments to environmental policies.Denmark is a model in this regard.The implementation of the ecological tax system not only effectively protects Denmark's environment, but also accumulates funds for the development of enterprises that meet environmental protection requirements, resulting in obvious economic benefits, making Denmark the country with the highest economic growth rate among EU countries.

Pigouvian tax mainly has the following functions:

1. Use resource taxation to save energy use, improve resource utilization efficiency, limit the use of high energy consumption products, and restrain resource waste and excessive consumption to a certain extent.Extraction tax is a tax imposed by the United States on the extraction of natural resources, mainly oil.Extraction tax can affect the environment by affecting the speed and quantity of resource extraction, it will inhibit the exploitation and management activities of marginal resources, and promote the reduction of resource extraction.Soil protection tax in the Netherlands is a tax levied by provincial departments on units and individuals who pump groundwater and units or individuals who directly benefit from soil protection.Its purpose is to provide funding for soil conservation.Sweden's general energy tax is a tax on oil, coal and gas.

2. To play a certain role in comprehensive utilization of resources and reduction of waste discharge.In Denmark, taxes on waste have doubled the cost of landfill and increased the cost of incineration by 70%.Household waste was reduced by 16%, construction waste by 64%, and other waste by an average of 22%.The waste recycling rate has also increased significantly, with a 77% increase in paper and a 50% increase in glass.In the United States, about 37 local communities in 3400 states have taxed household waste. The tax is based on the amount of household waste discarded. As a result, the amount of waste discarded has been significantly reduced and the recycling rate has been significantly increased.

[links to related words]

Externalities This divergence between private costs and social costs is called "externalities", "spillover effects".A market system is inefficient when private marginal costs diverge from social marginal costs.As long as there are substantial actual externalities, gains can be made whether or not people pay.The possibility of receiving the benefit of a good or service without paying for it creates the problem of what is known as the "free ride". The more people who get a "free ride," the higher the environmental cost.

Social cost Social cost refers to the cost to society of producing a commodity or taking a certain action.This cost does not necessarily equal the private cost.The analysis of social cost is generally carried out by analyzing the contradiction between the private product of the factory and the social product.

The ecological compensation mechanism is aimed at protecting the ecological environment and promoting the harmony between man and nature. According to the value of ecosystem services, ecological protection costs, and development opportunity costs, comprehensive use of administrative and market means is used to adjust the relationship between the parties involved in ecological environment protection and construction. Environmental economic policy of interests.Mainly aimed at the fields of regional ecological protection and environmental pollution prevention and control, it is an environmental economic policy with economic incentives, coexisting with the "polluter pays" principle, and based on the "beneficiary pays and destroyer pays" principle.

(End of this chapter)