Essay on A Brief Note On Taxation And Its Effect On Society

1397 Words May 9th, 2016 6 Pages
iv. Taxation
Taxation is one of the methods that many economists support because of its supposed efficiency. Under this method of pollution regulation, a tax rate is set for each standard unit of pollution that is equal to the social cost that pollution creates on society. The firm then has a choice of whether to pay the tax or seek methods to abate pollution. This method provides the firm with the freedom to compare the potential tax with the cost of abatement and reductions in output to allow selection of the option which leads to the smallest expense for the firm.
Taxation to reduce pollution produces some very distinct benefits for society. It will incentivize firms to search for the most cost efficient method to prevent pollution. This search will continue until the point where the cost of the abatement method exceeds its tax savings resulting from the reduction in pollution levels. Change in output levels is one effective manner by which firms can achieve abatement but only if the level of pollution emitted is proportional to output. Another benefit this form of regulation provides is lower information cost for implementation. With taxation, the agency creating the standard will only be required to estimate the benefits from reducing pollution and will not need to estimate the cost of compliance. This will reduce the likelihood of an erroneous emission standard being created because only one imprecise estimate will be required. The last benefit is the fact that…

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