A report on Tax and Externality

Total revenue from direct and indirect taxes given as share of GDP in 2017
Air pollution from motor vehicles is an example of a negative externality. The costs of the air pollution for the rest of society is not compensated for by either the producers or users of motorized transport.
Pieter Brueghel the Younger, The tax collector's office, 1640
Graph of Positive Externality in Production
Substitution effect and income effect with a taxation on y good.
Light pollution is an example of an externality because the consumption of street lighting has an effect on bystanders that is not compensated for by the consumers of the lighting.
Budget's constraint shift after an introduction of a lump sum tax or a general tax on consumption or a proportional income tax.
Negative production externality
The Laffer curve. In this case, the critical point is at a tax rate of 70%. Revenue increases until this peak, then it starts decreasing.
Negative consumption externality
General government revenue, in % of GDP, from social contributions. For this data, the variance of GDP per capita with purchasing power parity (PPP) is explained in 20% by social contributions revenue.
Positive production externality
Egyptian peasants seized for non-payment of taxes. (Pyramid Age)
Positive consumption externality
Public finance revenue from taxes in % of GDP. For this data, the variance of GDP per capita with purchasing power parity (PPP) is explained in 32% by tax revenue.
Demand curve with external costs; if social costs are not accounted for price is too low to cover all costs and hence quantity produced is unnecessarily high (because the producers of the good and their customers are essentially underpaying the total, real factors of production.)
Diagram illustrating deadweight costs of taxes
Supply curve with external benefits; when the market does not account for the additional social benefits of a good both the price for the good and the quantity produced are lower than the market could bear.
"Relative percentage price [∆] increases for broad categories [...] when externalities of greenhouse gas emissions are included in the producer's price."

Hence the most common approach may be to regulate the firm (by imposing limits on the amount of pollution considered "acceptable") while paying for the regulation and enforcement with taxes.

- Externality

Economists describe environmental impacts as negative externalities.

- Tax
Total revenue from direct and indirect taxes given as share of GDP in 2017

3 related topics with Alpha

Overall

Pigovian tax effect on output

Pigovian tax

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Pigovian tax effect on output

A Pigovian tax (also spelled Pigouvian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price).

Change over time of environmental and labour tax revenues for EU-27 member states. Source:European Environmental Agency

Ecotax

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Change over time of environmental and labour tax revenues for EU-27 member states. Source:European Environmental Agency

An ecotax (short for ecological taxation) or green tax is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives.

Specific taxes on technologies and products which are associated with substantial negative externalities.

Market distortion

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Any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve while operating under conditions of perfect competition and state enforcement of legal contracts and the ownership of private property.

Any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve while operating under conditions of perfect competition and state enforcement of legal contracts and the ownership of private property.

Other sources of distortions are uncorrected externalities, different tax rates on goods or income, inflation, and incomplete information.

almost all types of taxes and subsidies, but especially excise or ad valorem taxes/subsidies,