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Much Ado About Pigou


This is the name of the paper from Bruce Yandle that you can read in the last issue of Cato’s Regulation. In the surrounding flood of new taxes, Bruce Yandle is addressing the question of whether the intention behind them is to correct “market failures” as pollution, obesity, financial speculations and so on, or to simply raise revenue for a deficit-plagued government.

He is remaining that even Arthur Pigou, the economist who developed the theory of market externalities, did not believe that government could improve human well being by fine-tuning behavior with taxes, subsidies, and regulation. The chances for the politicians to get the calculations right is very small, and most of the time things would be even made worse.

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