Abstract: This paper examines how the optimal Pigouvian tax should be adjusted to reflect adminisrative costs. Several cases are examined, depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected, and on whether such costs are borne by the government or by the taxed firm. In some cases the presence of administrative costs leads to an optimal tax greater than the external cost, while in other cases it leads to a tax less than the external cost.