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The Limits of the MarketThe Pendulum Between Government and Market$
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Paul De Grauwe

Print publication date: 2017

Print ISBN-13: 9780198784289

Published to Oxford Scholarship Online: January 2017

DOI: 10.1093/acprof:oso/9780198784289.001.0001

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Who Can Save the Market System from Destruction?

Who Can Save the Market System from Destruction?

Chapter:
(p.65) Chapter 6 Who Can Save the Market System from Destruction?
Source:
The Limits of the Market
Author(s):

Paul De Grauwe

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198784289.003.0006

Economists have developed an important theory on the question of how governments should tackle externalities. The great proponent of this theory was Arthur Cecil Pigou, an English economist of the first half of the twentieth century. He argued that if a company generates external costs by emitting harmful substances, the government should determine the magnitude of the costs and impose them on the company. This is best achieved by taxes or imposing quantitative limits on the emissions. Similarly, in order to reduce inequality economists favour a progressive tax system This chapter teaches us what governments should do. We know what controls can rescue the free market from its downfall. These controls can only be implemented by governments. But is this knowledge sufficient? We often know what governments should do. But that does not mean it is what they will do.

Keywords:   growth vs inequality, redistribution, personal income tax, externalities, quantitative limits

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