Tuesday, October 31, 2006

The Pigou Club
Mike Rappaport

Greg Mankiw is a card carrying member of the Pigou Club, whose members favor higher Pigovian taxes in order to remedy externalities such as pollution and congestion while raising government revenue.  So Mankiw  favors raising the gas tax. 

Mankiw also discusses reasons why one would not join the club.  His fourth reason seems right to me:

You recognize the externalities but think the government should try to correct the market failure through regulations . . . or through market-based solutions that do not raise government revenue (such as cap-and-trade systems). Perhaps you are concerned that government would waste the extra revenue on useless government programs.

If I was sure that the government would lower other taxes dollar for dollar when it passed a gas tax, I would probably favor one.  But of course no one can be sure or even optimistic about that.

Nonetheless, read Mankiw's various posts on the subject, which are quite interesting. 


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Mike Rappaport


I think a major question is, should the government impose a tax to effect a behavioral change, or should it only impose a tax to fund things that only the government can do - like maintain an army?

We've been imposing "social repsonse" taxes for years - Social Security is one of them, but whether it's a proper function of government is still a question. At least, it is now. In Jefferson's time, there was no question - you just didn't do it.

Posted by: ZZMike | Nov 1, 2006 4:24:06 PM