Recently in a bid to curb health hazards originating from bursting of firecrackers the Pune Bench of...........

Economic Affairs Tax System

Recently, in a bid to curb health hazards originating from bursting of firecrackers, the Pune Bench of the National Green Tribunal has directed civic bodies to levy ‘green tax’ on sellers. Ecotaxes are examples of ‘Pigouvian taxes’, which are taxes that

1. Attempt to make the private parties involved feel the social burden of their actions

2. Shift the incidence of a direct tax in the form of an indirect tax

3. Applied only on business firms or commercial entities

Select the correct answer using the codes below.

2 only

2 and 3 only

1 only

1, 2 and 3

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Explanation:

Ecotax (short for Ecological taxation or Green taxation) refers to taxes intended to promote environmentally friendly activities via economic incentives. A Pigovian tax is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price). 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. For e.g. if a factory dumps polluted water in a local stream, it affects the water supply of the local community. But, this social cost is not included in the company’s cost-benefit analysis. By imposing this tax, the negative externalities are accounted for.