Prices versus Quantities Revisited: What Do Policymakers Need to Know to Set Pigouvian Taxes and Subsidies?

Denise DiPasquale, Edward Glaeser, Adam Guren and Paul Willen

No 26-8, Working Papers from Federal Reserve Bank of Boston

Abstract: What information do policymakers need to design Pigouvian taxes or subsidies? Standard logic suggests that it is sufficient to know the size of the externality and unnecessary to know about quantities. Yet this logic is incorrect if interventions have fixed costs, taxes create deadweight losses, or there are distributional concerns. We present a model in which these considerations can make it more valuable for policymakers to learn about equilibrium quantities. We apply the model to congestion pricing, which has high fixed costs, and to a proposed housing subsidy in Boston that features deadweight losses and distributional concerns.

Keywords: Pigouvian taxes; externalities; congestion pricing; Housing subsidies; tax abatement (search for similar items in EconPapers)
JEL-codes: H21 H23 R52 (search for similar items in EconPapers)
Pages: 48
Date: 2026-06-01
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Working Paper: Prices Versus Quantities Revisited: What Do Policymakers Need to Know to Set Pigouvian Taxes and Subsidies? (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:103475

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DOI: 10.29412/res.wp.2026.08

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