Revisiting the Classical View of Benefit-Based Taxation

33 Pages Posted: 17 Apr 2014 Last revised: 1 Mar 2016

Matthew Weinzierl

Harvard Business School - Business, Government and the International Economy Unit

Multiple version iconThere are 2 versions of this paper

Date Written: January 29, 2016

Abstract

This paper explores how the persistently popular "classical" logic of bene.t based taxation, in which an individual’s bene.t from public goods is tied to his or her income-earning ability, can be incorporated into modern optimal tax theory. If Lindahl’s methods are applied to that view of benefits, first-best optimal policy can be characterized analytically as depending on a few potentially estimable statistics, in particular the coefficient of complementarity between public goods and endowed ability. Constrained optimal policy with a Pareto-efficient objective that strikes a balance-controlled by a single parameter-between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods. A wide range of optimal policy outcomes can result, including those that match well several features of existing policies. To the extent that such an objective reflects the mixed normative reasoning behind prevailing policies, this model may offer a useful approach to a positive optimal tax theory.

Suggested Citation

Weinzierl, Matthew, Revisiting the Classical View of Benefit-Based Taxation (January 29, 2016). Harvard Business School BGIE Unit Working Paper No. 14-101. Available at SSRN: https://ssrn.com/abstract=2425225 or http://dx.doi.org/10.2139/ssrn.2425225

Matthew Weinzierl (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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