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Pigouvian taxes correct market failures, and in the presence of a Pigouvian tax set to the correct level, the market outcome is Pareto efficient. But,
Pigouvian taxes correct market failures, and in the presence of a Pigouvian tax set to the correct level, the market outcome is Pareto efficient. But, moving from the status quo (no corrective tax) to this point is not a Pareto improvement, but it is a Kaldor Hicks improvement. This problem illustrates this in an example with numbers
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