Skip to main content
  • Experts
  • Events
  • Briefing Book
  • Resources
  • About
  • Contact
  • Support
  • Fiscal Facts
Twitter
Facebook
Logo Site
  • Topics
    • Individual Taxes
    • Business Taxes
    • Federal Budget and Economy
    • State and Local Issues
    • Campaigns, Proposals, and Reforms
  • TaxVox Blog
  • Research & Commentary
  • Laws & Proposals
  • Model Estimates
  • Statistics
  • Features
Working paper

Should We Tax Internalities Like Externalities?

Donald Marron
November 10, 2015
Download PDFPrint
Share

Primary tasks

  • Overview(active tab)
  • Full Report

Abstract

Does the traditional rationale for taxing externalities also apply to internalities? Yes, if the goal is maximizing efficiency. Efficient taxes reflect any harms consumers overlook, whether to others or themselves. Yes with caution, if the goal also includes equity. Internality taxes fall most heavily on consumers who overlook future costs, a group that tends to have lower incomes. No if the goal is improving the well-being of people who consume harmful products. That paternalistic goal generally implies lower taxes than do efficiency or welfare maximization. In fact, the optimal paternalistic tax is often zero.

Research Area

Individual Taxes Consumption taxes (individual)
To reuse content from the Tax Policy Center, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.

Meet the Experts

  • Donald Marron
    Institute Fellow
Research report

New Evidence on The Effect of The TCJA On the Housing Market

Robert McClelland, Livia Mucciolo, Safia Sayed
March 30, 2022
  • Donate Today
  • Topics
  • TaxVox Blog
  • Research & Commentary
  • Laws & Proposals
  • Model Estimates
  • Statistics
  • Privacy Policy
  • Newsletters
Twitter
Facebook
  • © Urban Institute, Brookings Institution, and individual authors, 2022.