Pigou in the 21st Century: a tribute on the occasion of the 100th anniversary of the publication of The Economics of Welfare

Ottmar Edenhofer, Max Franks and Matthias Kalkuhl
Additional contact information
Matthias Kalkuhl: Mercator Research Institute On Global Commons and Climate Change (MCC)

International Tax and Public Finance, 2021, vol. 28, issue 5, No 2, 1090-1121

Abstract: Abstract The year 2020 marks the centennial of the publication of Arthur Cecil Pigou’s magnum opus The Economics of Welfare. Pigou’s pricing principles have had an enduring influence on the academic debate, with a widespread consensus having emerged among economists that Pigouvian taxes or subsidies are theoretically desirable, but politically infeasible. In this article, we revisit Pigou’s contribution and argue that this consensus is somewhat spurious, particularly in two ways: (1) Economists are too quick to ignore the theoretical problems and subtleties that Pigouvian pricing still faces; (2) The wholesale skepticism concerning the political viability of Pigouvian pricing is at odds with its recent practical achievements. These two points are made by, first, outlining the theoretical and political challenges that include uncertainty about the social cost of carbon, the unclear relationship between the cost–benefit and cost-effectiveness approaches, distributional concerns, fragmented ministerial responsibilities, an unstable tax base, commitment problems, lack of acceptance and trust between government and citizens as well as incomplete international cooperation. Secondly, we discuss the recent political success of Pigouvian pricing, as evidenced by the German government’s 2019 climate policy reform and the EU’s Green Deal. We conclude by presenting a research agenda for addressing the remaining barriers that need to be overcome to make Pigouvian pricing a common political practice.

Keywords: Environmental economics; Climate change economics; Carbon pricing; Pigouvian taxation; Economic policy (search for similar items in EconPapers)
JEL-codes: H2 Q5 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://link.springer.com/10.1007/s10797-020-09653-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:28:y:2021:i:5:d:10.1007_s10797-020-09653-y

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-020-09653-y

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().