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Who was the first person to discuss externalities and how they affect markets? The sources I've read seem to strongly imply Pigou but I am not sure if that is just because of the tax.
Does anyone know?
Tuesday, August 11, 2009
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Unsure, but I think it was Pigou.
ReplyDeleteJust majorly disappointed it was not Coase. Would have prevented a whole lot of rubbish.
What do you know about fiscal externalities? Crampton linked to an interesting paper on why they do not matter from an efficiency perspective by Buchanan, but its complexity was beyond my reach.
Wikipedia, that Hayekian force in all its magnificence, declares that:
ReplyDelete"...Pigou is responsible for the distinction between private and social marginal products and costs. He originated the idea that governments can, via a mixture of taxes and subsidies, correct such perceived market failures — or "internalize the externalities".
Thanks for that!
ReplyDeleteI'm a little more amenable to argument from fiscal externality than Crampton, at least in a theoretical sense - you can see my take on a possible Government response here. That doesn't quite cover your question, but Buchanan's argument is probably worth a whole new post, and probably a fairly dry one! Still, it might be fun.
It's also probably worth noting that a lot of things we might think have negative fiscal externalities actually have positive ones - smoking for example, at least given how heavily it's taxed.
Sorry that link doesn't work, try this:
ReplyDeletehttp://defectiveequilibrium.blogspot.com/2009/07/why-government-should-lie-to-us.html
Yes. The fact that few are willing to concede positive fiscal externalities, which Time magazine commissioned a study on which showed cigarettes should be subsidised, suggests to me that most fiscal externality arguments are merely paternalism dressed in the language of ecnomics.
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