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ABSTRACT

From the environmental point of view the optimum level of pollution is zero, but in economic terms is to assess the costs and benefits of the use of environmental resources. In a competitive market, the demand curve represents the private benefits and the supply curve the costs and if the private net benefits are maximised, thus, is necessary to verify that it does not produce the "market failure" with irreversible damage on the environment and cause the loss of social welfare.

In this context, the tax represents a tool to contract production and pollution to the socially optimum level that fits in the private convenience calculations of the enterprises. However, it is unthinkable that an economic policy intervention is exempt from a certain degree of imponderables, and as such, has a certain margin of error. This applies generally but also specifically for 'pigouvian' taxation, where the risk of an error must be accepted, once it has done everything possible to minimize it.

KEYWORDS

'pigouvian' tax, environmental pollution, market equilibrium, tax equity, environmental optimum, sustainability

INTRODUCTION

The issues of each allocative efficiency of resources, including preservation and exploitation of the market to achieve the socially optimal level of pollution, may have an answer through the adoption of the fiscal instrument. The first economist who has been involved in the search for a tool to correct the distortions that pollution causes on the functioning of the market has been Pigou that, in the '20s, identified a public solution and of "market" to the problem of negative environmental externalities, with the introduction of an environmental tax.

Thanks to Pigou was originated the 'polluter pays' principle and, consequently, to tax those who produce environmental negative externalities. If those who damages the natural resources has to pay for the damage done, you would have the internalization of the external diseconomies (Gullì, 2002), and thus equality between private production costs and social costs. The price should reflect the full cost to adjust production and consumption on the socially optimal levels.

1. METHODOLOGY

This paper aims to identify the positive aspects of Pigouvian tax for effective environmental policy, highlighting the critical issues that arise in the actual application. This application requires to be addressed the four stages of analysis in...

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