Plagouvian Subsidies And Taxes

Question 1

Plagouvian Subsidy

Answer 1

Financial assurance (normally a grant) provided to an activity which generates positive externalities that seeks to encourage consumption

Question 2

Plagouvian Taxes

Answer 2

The aim of these taxes are to internationalise the externality and make the polluter pay

Question 3

Indirect Tax effects on the externality

Answer 3

Firms will see an increases in COP this should be equivalent to the externality, the higher price will contract demand to the socially optimal level