ADMINISTRATIVE PROBLEMS.
Masur ’15 [Jonathan and Eric Posner; February; John P. Wilson Professor of Law at the University of Chicago Law School; law professor at the University of Chicago Law School; University of Chicago Law School, “Toward a Pigouvian State,” no. 503] jchen
One concern about Pigovian taxes is that they may be difficult to administer. If the regulator cannot reliably determine the social cost of an activity, it cannot calculate the optimal Pigovian tax. This problem would of course affect Pigovian taxes whether imposed by statute or regulation. Economists have discussed these issues for decades and the consensus appears to be that administrative problems are generally manageable.155 In a recent paper, Victor Fleischer argues that Pigovian taxes are frequently inefficient because they are typically calculated based on an assumption of uniform marginal social cost when in fact the social cost of an activity often varies across individuals or firms.156 He provides the example of taxes on fatty foods, which may be justified on the theory that obesity creates social costs. However, some people eat fatty foods without becoming obese. They should not be taxed; and a tax might deter them from a valuable activity. A tax based on the average contribution of fatty food to social costs will also underdeter obese people. A better tax would vary according to the likelihood that any person becomes obese, but such a tax would be difficult to administer.