What is corrective tax?
Understand the Problem
The question is asking for an explanation of what a corrective tax is, including its purpose and how it functions in economic terms.
Answer
A tax levied on goods/services with negative externalities to reflect true social costs.
A corrective tax is levied on goods or services that generate negative externalities in order to make their market prices better reflect their true social costs.
Answer for screen readers
A corrective tax is levied on goods or services that generate negative externalities in order to make their market prices better reflect their true social costs.
More Information
Corrective taxes are also known as Pigouvian taxes, named after economist Arthur Pigou, who first developed the concept.
Sources
- Corrective Taxes - IFS - ifs.org.uk
- Corrective Taxes to Save Lives | Center For Global Development - cgdev.org
- Corrective Taxation versus Liability as a Solution to the Problem of ... - journals.uchicago.edu
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