Pigouvian Gun Taxation

Despite increasing rates of gun violence in the United States in recent years, few estimates of the marginal social costs of guns have been undertaken, and the use of Pigouvian taxation to induce the internalization of negative externalities from firearms has rarely been discussed. This study presents estimates of the annual volume of gun sales and the average price of firearms in the market, and then estimates their marginal external costs. The analysis indicates that existing taxes on firearms erode at least $2.57 billion per year in deadweight loss, but fail to fully induce internalization of the negative externalities of guns. For every additional million guns sold, there are about 110 additional firearm-related homicides. The marginal external cost per gun is conservatively estimated to be at least $681. Allocative efficiency would require a Pigouvian tax of at least 65 percent of the retail price.