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.
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.