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Pigouvian Taxes - Paris considers charging SUVs higher parking fees

Graham Watson

12th July 2023

An interesting take on the negative externalities of urban air pollution, with Paris seemingly on the point of charging SUV drivers higher parking fees. It strikes me that this is a good move, assuming that SUVs are bigger polluters than other cars - it's just an example of a Pigouvian tax isn't it, in making the polluter pay?

Please read: Paris to charge SUV drivers higher parking fees to tackle ‘auto-besity’ (Guardian)

According to a Parisian Deputy Mayor, "SUVs are absolutely useless in Paris. Worse, they are dangerous, cumbersome and use too many resources to manufacture.”

Background

A Pigouvian tax is a tax that is placed on a market activity that generates negative externalities. The aim of a Pigouvian tax is to make the price of the good equal to the social marginal cost and create a more socially efficient allocation of resources.

Negative externalities are costs that are borne by society as a result of an economic activity, but are not reflected in the price of the good or service being produced. For example, the production of electricity can generate air pollution, which is a negative externality. The people who breathe the polluted air are not the ones who are paying for the electricity, so they are not taking into account the cost of the pollution when they make their decisions about how much electricity to consume.

A Pigouvian tax is designed to internalize the negative externality by making the producer of the good or service pay for the cost of the pollution. This can help to reduce the amount of pollution being produced and create a more efficient allocation of resources.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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