I don’t know where this “old adage” of yours comes from, but a tax can be a useful tool for solving some problems. A carbon tax, for example, would be a tax not intended to collect money, but instead intended to modify behaviors, and correct a market inefficiency. This is one example of a pigouvian tax.
I was being a bit glib—of course there are some variations of taxation that fit pretty well with non-revenue policy goals. I do think they’re less frequently a good match, and MUCH less often implemented reasonably than wonks and economists (and rationalist chatterers) seem to believe.
I’m not sure how well any real carbon taxes have worked in terms of revenue OR reducing overall emissions. I haven’t studied deeply, so I could easily be wrong (and would love to learn), but my sense is that they’re applied unevenly and are somewhat easy to game, so tend not to actually get paid. Which makes them non-Pigouvian, as the revenue isn’t enough to actually mitigate the harm.
I’m not sure how well any real carbon taxes have worked in terms of revenue OR reducing overall emissions.
I don’t know either, I know that carbon taxes are widely considered to be a good tool against amongst economists, but I don’t know if the real carbon taxes have been evaluated.
Which makes them non-Pigouvian, as the revenue isn’t enough to actually mitigate the harm.
I’m not sure I follow you here. The role of a pigouvian tax is to correct market inefficiencies, not produce revenue.
The classical model goes as follows: assume a factory with a production level x produces x utility for itself, but causes −x2/2 for others. The optimum in term of total utility would be x=1, but since the factory doesn’t pay for this externality, it can produce much more. This is inefficient.
Now you introduce a tax amounting to −x2/2. The factory does the math and reduces its production to x=1, reaching the utility maximizing solution. Now you also receive x2/2 which you could redistribute to whoever suffers from the factory but you don’t need to. The optimum is reached whenever the tax is applied, regardless of whether or not the “victims” are being compensated. You could introduce a tax of x2/2−1/2, this way producing no revenue at the equilibrium, and the result would be the same.
If now the factory is very good at dodging taxes and only pays x2/10 for some reason, it will still have an incentive to reduce its production. The new optimum will not be x=1, but introducing such a tax will still move the system closer to the optimum.
(Although introducing a new tax could also have some negative effects, especially if all actors are not equally good at dodging taxes, so there is surely a level at which, if such a system is too easy to game, it becomes detrimental)
Hmm, I’m apparently misremembering the rationale Pigeau used—certainly including the cost in the producer’s optimization calculation is one part of it, but I thought it was also calculated to compensate or offset the damage from the externality. You’re absolutely right that “tax what you don’t want, subsidize what you do” is a core element of tax theory, but I will still argue that it’s secondary to the core of tax reality, which is that revenue is the real metric of impact.
An optimal and consistent application of the idea would presumably also apply a Pigouvian subsidy to actions with positive externalities, which would give you more of those actions in proportion to how good they are. If you did this for everything perfectly then you wouldn’t need to explicitly track which taxes pay for which subsidies. Every cost/price would correctly reflect all externalities and the market would handle everything else. In principle, “everything else” could (as with some of Robin Hanson’s proposals) even include things like law enforcement and courts, with a government that basically only automatically and formulaically cashes and writes checks. I don’t expect any real-world regime could (or should try to) actually approach this limit, in practice, though.
I would note that, in aggregate, the government’s net revenue is not the thing government, or tax policy, are optimized for. Surplus, deficit, and neutrality can all be optimal at different times. If the government wanted to maximize net revenue in the long run, I doubt the approach would look much like taxation. Maybe more like a sovereign wealth fund.
As an example: If a carbon tax had its desired effect, it would collect money now (though the money might be immediately spent on related subsidies or tax breaks), but in the long run, if it’s successful, we’d hope to reach a point where it’s never collected again, because non-GHG-emitting options became universally better.
I don’t know where this “old adage” of yours comes from, but a tax can be a useful tool for solving some problems. A carbon tax, for example, would be a tax not intended to collect money, but instead intended to modify behaviors, and correct a market inefficiency. This is one example of a pigouvian tax.
I was being a bit glib—of course there are some variations of taxation that fit pretty well with non-revenue policy goals. I do think they’re less frequently a good match, and MUCH less often implemented reasonably than wonks and economists (and rationalist chatterers) seem to believe.
I’m not sure how well any real carbon taxes have worked in terms of revenue OR reducing overall emissions. I haven’t studied deeply, so I could easily be wrong (and would love to learn), but my sense is that they’re applied unevenly and are somewhat easy to game, so tend not to actually get paid. Which makes them non-Pigouvian, as the revenue isn’t enough to actually mitigate the harm.
I don’t know either, I know that carbon taxes are widely considered to be a good tool against amongst economists, but I don’t know if the real carbon taxes have been evaluated.
I’m not sure I follow you here. The role of a pigouvian tax is to correct market inefficiencies, not produce revenue.
The classical model goes as follows: assume a factory with a production level x produces x utility for itself, but causes −x2/2 for others. The optimum in term of total utility would be x=1, but since the factory doesn’t pay for this externality, it can produce much more. This is inefficient.
Now you introduce a tax amounting to −x2/2. The factory does the math and reduces its production to x=1, reaching the utility maximizing solution. Now you also receive x2/2 which you could redistribute to whoever suffers from the factory but you don’t need to. The optimum is reached whenever the tax is applied, regardless of whether or not the “victims” are being compensated. You could introduce a tax of x2/2−1/2, this way producing no revenue at the equilibrium, and the result would be the same.
If now the factory is very good at dodging taxes and only pays x2/10 for some reason, it will still have an incentive to reduce its production. The new optimum will not be x=1, but introducing such a tax will still move the system closer to the optimum.
(Although introducing a new tax could also have some negative effects, especially if all actors are not equally good at dodging taxes, so there is surely a level at which, if such a system is too easy to game, it becomes detrimental)
Hmm, I’m apparently misremembering the rationale Pigeau used—certainly including the cost in the producer’s optimization calculation is one part of it, but I thought it was also calculated to compensate or offset the damage from the externality. You’re absolutely right that “tax what you don’t want, subsidize what you do” is a core element of tax theory, but I will still argue that it’s secondary to the core of tax reality, which is that revenue is the real metric of impact.
An optimal and consistent application of the idea would presumably also apply a Pigouvian subsidy to actions with positive externalities, which would give you more of those actions in proportion to how good they are. If you did this for everything perfectly then you wouldn’t need to explicitly track which taxes pay for which subsidies. Every cost/price would correctly reflect all externalities and the market would handle everything else. In principle, “everything else” could (as with some of Robin Hanson’s proposals) even include things like law enforcement and courts, with a government that basically only automatically and formulaically cashes and writes checks. I don’t expect any real-world regime could (or should try to) actually approach this limit, in practice, though.
I would note that, in aggregate, the government’s net revenue is not the thing government, or tax policy, are optimized for. Surplus, deficit, and neutrality can all be optimal at different times. If the government wanted to maximize net revenue in the long run, I doubt the approach would look much like taxation. Maybe more like a sovereign wealth fund.
As an example: If a carbon tax had its desired effect, it would collect money now (though the money might be immediately spent on related subsidies or tax breaks), but in the long run, if it’s successful, we’d hope to reach a point where it’s never collected again, because non-GHG-emitting options became universally better.