Pigouvian tax

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Definition

A Pigovian tax or Pigouvian tax is a tax levied on a certain activity intended to reflect the net external cost or negative externality of the activity (i.e., the cost not borne by the people engaging or controlling the activity).

The opposite of the Pigovian tax is a Pigovian subsidy -- a subsidy provided to an activity intended to reflect the net external benefit or positive externality of the activity.