Pigouvian Taxation with Administrative Costs
19 Pages Posted: 18 Aug 2004 Last revised: 14 Jul 2010
Date Written: September 1981
This paper examines how the optimal Pigouvian tax should be adjusted to reflect administrative costs. Several cases are examined, depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected, and on whether such costs are borne by the government or by the taxed firm. In some cases, the presence of administrative costs increases the optimal tax above the external cost, while in other cases it leads to a decrease in the tax.
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