Planet Money Summer School 2: How taxes change behavior and the economy
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Jul 16, 2025 
Darrick Hamilton, a distinguished professor at The New School and expert in economic policy, dives into the multifaceted role of taxes in shaping behavior and society. He discusses how taxes can incentivize eco-friendly practices and promote homeownership. The transformative impact of the Earned Income Tax Credit is highlighted, showcasing its effectiveness in supporting low-income individuals. Furthermore, Hamilton explores Pigouvian taxes as a solution for negative externalities like pollution, illustrating how smart tax policy can drive significant change for the better.
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EITC Helps Working Poor Families
- Lynn Matthews and Miriam Ochoa exemplify how the Earned Income Tax Credit (EITC) helps working poor families.
- The EITC pays cash bonuses encouraging people to work and gradually increases support as their income rises.
Progressive Taxation and Marginal Utility
- Progressive taxation means higher incomes face higher marginal tax rates, reflecting economic value differences.
- Marginal utility explains why a dollar is more valuable to a poorer person than to a richer one.
Pigouvian Taxes Address Externalities
- Arthur Pigou identified negative externalities like pollution where private costs differ from social costs.
- Pigouvian taxes force polluters to pay society's true costs to correct these externalities.