section_path: Economic effects/Increased economic welfare/Pigovian
section_name: Pigovian
paragraph_text: Pigovian
  
  The existence of a tax can increase economic efficiency in some cases. If there is a negative externality associated with a good (meaning that it has negative effects not felt by the consumer) then a free market will trade too much of that good. By taxing the good, the government can raise revenue to address specific problems while increasing overall welfare.
  
  The goal is to tax people when they are creating societal costs in addition to their personal costs. By taxing goods with negative externalities, the government attempts to increase economic efficiency while raising revenues.
  
  This type of tax is called a Pigovian tax, after economist Arthur Pigou who wrote about it in his 1920 book "The Economics of Welfare".
  
  Pigovian taxes might target the undesirable production of greenhouse gases which cause climate change (namely a carbon tax), polluting fuels (such as petrol), water or air pollution (namely an ecotax), goods which incur public healthcare costs (such as alcohol or tobacco), and excess demand of certain public goods (such as traffic congestion pricing). The idea is to aim taxes at people that cause an above-average amount of societal harm so the free market incorporates all costs as opposed to only personal costs, with the benefit of lowering the overall tax burden for people who cause less societal harm.