Negative Externalities Analysis

In my opinions, the imposition of tax is one of most appropriate method to reduce the negative externalities, yet not effective and efficient, which fulfill the needs of governments to access the cost of the society of a particular negative externalities. As one of common policy of government, there are three aspects that exert positive influence on both society and economy. Taxation on negative externalities provides incentives to reduce the negative externalities. Regard as social efficiency, it is the best solution. Besides, to some extent, Taxation will raise revenue for the government. On the other hands, the taxation is hard to be controlled. To be specific, setting a monetary value on negative externalities and making the decisions on

(“A good disruption, a great read”, Scott Nyquist, Nov 2rd 2016, www.linkedin.com) Externalities can be divided into two aspects, including positive externalities and negative externalities. When social cost is greater that social cost, negative externalities will arise. Hence, when social benefit is greater than private benefit, a positive externality is said to exist. As mentioned above, a negative externality is an economic activity that exert a negative influence on an unrelated third party. Pollution is termed an externality because it imposes costs on people who are "external" to the producer and consumer of the polluting product. (Goodstein, Eban. Economics and the Environment. Wiley. p. 32.) It can arise either during the production or the consumption of a good or service. (http://principles-of-economics-and-business.blogspot.com/2014/10/microeconomics-externalities.html) For example, manufacturing activities that cause air pollution impose health and clean-up costs on the whole society. There is a variety of negative externalities, ranging from pollution, illness to negative ideas. But generally, we consider pollution as the externalities, including air pollution, nuclear waste and noise

(Barthold, Thomas A. (1994). "Issues in the Design of Excise Tax." Journal of Economic Perspectives. 133-151) Pigovian taxes is the basic principle of the Taxation on negative externalities. The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities. The government charges would force the sellers of the good or service to start taking into account these external costs along with their own and would effectively shift the supply curve to the left, resulting in smaller quantities of the good being sold at a higher price in the new equilibrium. And thus, there will be fewer costs imposed on third parties. The cost of taxation is composed by the cost of gathering information, costs of debating and making policy decisions, and costs of administration, which is prohibitively expensive for the government to determine the size of the external costs or benefits involved.