Arthur Pigou gave his name to a tax on activities causing pollution or other external costs.
Pigou developed the idea in his 1920 book The Economics of Welfare. He examined situations in which an activity imposes costs on people who are not directly involved in the transaction, such as pollution affecting nearby communities.
A Pigouvian tax is intended to make the private cost of an activity closer to its full social cost. In theory, a pollution charge can encourage firms and consumers to reduce emissions, switch technologies, or choose less damaging alternatives.
The concept does not mean that every environmental tax automatically matches the precise harm caused. Governments must estimate damages, monitor behavior, and decide how revenue should be used. Carbon taxes, congestion charges, and taxes on landfill disposal are commonly discussed as practical examples related to Pigouvian reasoning.