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corrective taxes are unlike most other taxes because they question 16 options: 1) move the allocation of resources away from the social optimum. 2) distort incentives. 3) raise revenue for the government. 4) move the allocation of resources closer to the social optimum.

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Corrective taxes are unlike most other taxes because they move the allocation of resources closer to the social optimum.

The term "corrective tax" (also known as a "Pigouvian tax") refers to a levy imposed on a good or service as a result of the unfavourable externalities connected with its production and/or use. Its market price and output levels should more accurately represent the true cost to society. Corrective taxes, often known as "Pigouvian" taxes, can be used to make up for externalities or "internalities" in a market:

  • An externality is when costs are borne by others.
  • Internality: expenses that an individual must bear personally.

"Excise taxes" are frequently used to implement corrective taxes. For instance, on alcohol, cigarettes, and motor fuels

These goods' taxes account for 7.2% of all tax revenue. The marginal societal harm associated with consuming should be used to determine taxes.

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