Luís Calderón Gómez (Cardozo) and Mitchell Kane (NYU) have posted a new piece on SSRN, forthcoming in the UC Davis Law Review, titled, “Pigou Goes Abroad.” Here’s the abstract:
Pigouvian regulation is enjoying a renaissance. Scholars and policymakers increasingly hail Pigouvian instruments (e.g., a pollution tax on a polluting factory) as superior to command-and-control regulation (e.g., a zero-pollution mandate) in targeting a myriad of social problems. Yet the Pigouvian revival rests on a largely unexamined assumption: that these fiscal instruments can beconceived, designed, and implemented as purely domestic policies.
That assumption is wrong. Many of the most consequential problems that governments face today—carbon emissions, financial contagion, and global wealth concentration—are neither produced nor borne within national borders. And when harms and markets transcend jurisdictional boundaries, our conventional Pigouvian regulatory analysis breaks down. In many cases, the implemented domestic instrument may prove ineffective, unstable, or even counterproductive, inducing evasion, arbitrage, and political unraveling. Conversely, in some contexts well-designed domestic instruments might prove surprisingly robust in combatting essentially global harms.
This Article develops a novel framework for evaluating the effectiveness and scope of Pigouvian taxes on a cross-national scale, acknowledging the reality that some of our most pressing social problems are not domestic. We identify three factors that have often been ignored or confounded by the literature: (i) the location of the relevant market and harm, (ii) interjurisdictional competition and heterogeneity, and (iii) distributional considerations. Together, these neglected factors can explain whether a cross-national approach is warranted, whether a cross-national approach can be feasibly enacted, and frequent obstacles to the instrument’s effectiveness, alongside design features that could address such obstacles.
We apply our framework to current and proposed instruments on carbon emissions, financial transactions, soda consumption, and wealth concentration, and show why many of them are structurally prone to failure—and how they could be redesigned. We further extend our framework to two traditionally domestic regulatory instruments, recent U.S. environmental and immigration policies, and show how—even in this presumably domestic context—our framework enriches our understanding of these policies, robustly predicting regulatory failures and highlighting policy fixes. In doing so, the Article reframes Pigouvian taxation as an almost inescapably cross-border endeavor, with significant implications for tax design, regulatory instrument choice, and international regulatory coordination.
