It’s pretty easy to find instances of people claiming to support some goal but opposing Pigovian taxes that work toward that goal. Economists love Pigovian taxes. Why don’t the laity? Some objections seems to be based on a misunderstanding—the distributional impact of a well-designed gas tax, for example—while others—the preference for allowing harm over doing harm—seem to be more dearly held.
Paris and other French cities have recently been the site of large and heated (there were fires) protests. The most prominent symbol of the protests is the high-visibility gilets jaunes which all French motorists are required to own. This symbol is fitting for a series of protests that coalesced in opposition to an increase in the gas tax. While this protest (and any other protest) isn’t about a single grievance, it certainly seems to signify something about the popular opinion of gas taxes.
This pattern seems common: Acknowledgment that global warming and excessive fossil fuel use are problems which must be addressed followed by reluctance or opposition to concrete responses (Leiserowitz 2006).
Other examples include:
- Washington Initiative 732
- A 2016 revenue neutral carbon tax that would have used revenues from the tax to reduce the (highly regressive) state sales tax and increase a low-income tax credit. It lost despite Washington’s reputation for environmental concern.
- Washington Initiative 1631
- A 2018 carbon tax that would have used revenue from the tax to invest in green initiatives and other infrastructure projects. Again, the measure did not pass.2
- Australian carbon tax
- Introduced in 2012 by the Labor government, it was repealed in 2014 by the Liberal government.
(Carbon taxes aren’t always doomed to failure. British Columbia has had a carbon tax of $35 per tonne in place since 2008. Sweden has the world’s highest carbon tax at about $138 per tonne. California recently voted down a repeal of recent gas tax increases.)
What are Pigovian taxes?
So gas and carbon taxes are controversial with the public. Not so for economists and technocrats. They are both examples of Pigovian taxes. In brief, Pigovian taxes seek to correct market failures arising from negative externalities. A negative externality is any cost generated by a market activity that is not priced into the market exchange.
For example, local air pollution caused by combustion of gasoline harms other nearby people—think especially of those who don’t even own a car—who receive nothing in exchange for bearing this harm. Because these costs aren’t included in the price of gasoline, gas is cheaper than it ought to be, all things considered. This leads to overconsumption of gasoline.
A Pigovian tax tries to remedy this market failure by making the ‘invisible’ costs of externalities manifest via a tax. If the total external costs of driving—due to externalities like greenhouse warming, congestion and local pollution—amount to $1.76 per gallon (an estimate from (Parry, Walls, and Harrington 2007)), a tax of $1.76 on each gallon forces the gasoline purchaser to ‘internalize’ those costs—account for the social harm they are creating with their actions.
A tax only an economist could love
“Economists are in almost universal agreement that, in concept, pollution taxes are the most cost-effective means of reducing pollution” (Hsu 2009). In a direct survey, 65% of economists attested that there should be an overall increase in energy taxes (Whaples 2006). Gregory Mankiw keeps a partial list of prominent economists that support Pigovian taxes in the form of the membership rolls of the Pigou Club.
Contrariwise, only 5% of the general public supported a tax on driving in a 2007 survey.
For a (very accessible) fuller discussion in support of Pigovian taxes from an economist, see (Mankiw 2009).
Reasons to oppose
I’ll confess myself to be on the side of economists when it comes to Pigovian taxes. I’m then left with the question, why are they so unpopular with the general public? There are many possible reasons which we’ll now rehearse (Though we will stick to arguments where there’s something interesting to say about Pigovian taxes specifically; we won’t rehash arguments about whether the government should ever intervene in the market, can be trusted, &c.) . Since the case for Pigovian taxes rests on both positive (these are the effects of Pigovian taxes) and normative (these effects are good) premises, we’ll categorize3 the objections as:
- Misapprehensions of the positive
- Disagreements with the positive
- Misapprehensions of the normative
- Disagreements with the normative