How can taxation be used to address social costs associated with negative externalities?

Taxation can be an effective way to address social costs that come from negative externalities, which are harmful effects on others that businesses or individuals cause. When a company pollutes the air or water, for example, it creates costs for society, like health problems or clean-up expenses. By imposing a tax on the polluter, the government can make them pay for the damage they cause, encouraging them to reduce their harmful activities. This tax can serve as a financial incentive for businesses to find cleaner and safer methods of operation. For instance, if a factory is taxed based on the amount of pollution it emits, it may invest in better technology to lower its tax burden and reduce harm to the environment.